When forming a corporation, one of the vital things that you need to do is make a shareholder agreement. A shareholder agreement binds two parties or more in a commitment to share financial resources, responsibilities, and rights to profits and authority.
A shareholder agreement highlights the most important terms and conditions arising from the existence of a corporation. It also delineates the scope of authority and limitation of vesting.
A shareholder agreement is a contract, meaning all parties who willfully signed it will be held liable by the terms and conditions specified in it. Because of such nature, a shareholder agreement is binding in court when future disputes arise.
Components of Shareholder agreement
It includes content such as:
1. Introduction and declaration of share percentage of parties
2. Management and Operation- Specify key leadership positions and who will assume the responsibilities.
3. Voting - Specify the authority and power of key leaders in decision-making. Consensus, majority vote, or unanimous decision style must be explained
4. Salaries and checks - Matters involving the compensation for the leadership positions should be stated. All payment to the corporation may be deposited into a single or certain bank account/s.
5. Employment - It may highlight the loyalty or terms of employment of executives. It may include provision for full time employment with prohibition on conflict of interest.
6. Disability - It may state the duration of financial assistance or continuance of salary of an injured or disabled shareholder. It may include provision on the process of selling the shares of stock.
7. Indemnity - It must state how the other shareholders will share compensation for any liability, involving the corporation.
8. Death of a Shareholder (Specify process for Acceptance, Closing, and Purchase Price)
9. Lifetime Sale of Shares (Discuss procedure for Offer, Failure to Purchase, Default, Deferred payment, Escrow, Default, Additional Items At Closing, Loans, and Guarantee.
10. Corporate Surplus
11. Tax Liability
12. Action in Violation of Agreement
17. Restrictive Covenant
20. Construction of Terms
After delineating the terms and conditions and special provisions, all parties must affix their signature or seal.
All of the provisions stated in the Shareholder Agreement must gain approval from concerned parties and signed in the presence of an attorney. All legal matters must be resolved within the given time period.
Consult a Corporate Business Lawyer in Los Angeles and learn more on Shareholder Agreement.