If you have more than one shareholder in your corporation, you need a shareholders’ agreement.
A shareholders’ agreement is a written contract that regulates the relationship between the shareholders of a corporation. It sets out provisions for addressing shareholders’ exit, share percentage ownership, corporate governance and decision-making processes.
HOW IMPORTANT IS A SHAREHOLDERS’ AGREEMENT?
See a shareholders’ agreement as a business prenuptial agreement. As it is with prenups, where couples in the honeymoon phase of their relationship, set out rules of disengagement, in the event their marriage fails, so should it be with businesses having more that one shareholder.
At the outset of a business relationship, it could be difficult to foresee a situation where shareholders or business partners would encounter a fallout. The business relationship could be going so smoothly that the last thing on the partners’ minds is preparing an agreement to regulate their business relationship. Sometimes, businesses go south, partners move on, and shareholders voluntarily or otherwise decide to exit businesses.
How do you ensure the scenarios above are played out with a win-win for all? Have a shareholders agreement in place right from the onset.
Please log in to read the full article.