Planning for Your Business's Future: What Are Shareholder Agreements?

 Posted on April 30, 2018 in Business Law

Starting a new business is an exciting time. Business owners put a great deal of thought into their plans for their company, and setting those plans into motion can be immensely satisfying. However, decisions made at the beginning of a business venture can greatly impact a business’s future. Therefore, it is important for business partners to plan for the future and ensure that their rights are protected. One way to do so is through a shareholder agreement. Furthermore, having this type of agreement in place can help safeguard against future commercial litigation if disputes should ever arise between partners.

What Should be Included in a Shareholder Agreement?

A shareholder agreement, also known as an operating agreement, is a contract between the people who have an ownership interest in a company. The agreement outlines the shareholders’ rights and ensures that each person’s interests are protected. Moreover, the agreement may additionally describe how certain types of disputes will be resolved if they should arise in the future.

A shareholder agreement may include the following:

• Identification of the parties, including the name of the company and the names of all shareholders included in the agreement;

• Decisions about who can be a shareholder or who can serve on the company’s board of directors;

• Details regarding what happens if a shareholder leaves the company. The agreement may specify whether buy-back of a partner’s shares will be optional or mandatory, and it may determine what will happen in the event of a shareholder’s death, disability, resignation, or termination;

• A right of first refusal clause that specifies that the company has the right to purchase a shareholder’s shares in the company before they are sold to an outside party;

• Decisions about how matters will be handled if a shareholder gets divorced or files for personal bankruptcy;

• The value of shares in the company, including the methods used to determine the changing value of these shares in the future;

• The rights of majority and minority shareholders;

• Details regarding how disputes between shareholders will be resolved, such as mediation or arbitration; and

• Descriptions of any insurance policies used to provide funds to buy a shareholder’s shares. 

Contact a Milwaukee, WI, Business Law Attorney

While shareholder agreements are optional, they can provide business owners with a sense of security and stability, thus ensuring that their interests will be protected as the company grows and develops.

The skilled attorneys of Gimbel, Reilly, Guerin & Brown, LLP can work with you to create a shareholder agreement that meets your specific needs. To get started preparing for your company’s future, contact our knowledgeable Milwaukee corporate law attorneys at 414-271-1440.

Sources:

http://docs.legis.wisconsin.gov/statutes/statutes/180/XVIII/1823

https://www.investopedia.com/terms/s/shareholdersagreement.asp

https://www.entrepreneur.com/article/35988