Shareholder Agreements: An Overview

By: Kamille Pagibigan
Submitted: 2008-09-30 00:04:36
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Shareholder Agreements

A shareholders' agreement is defined as a pact between the shareholders of a company. It is sometimes referred to as a stockholder's agreement.

Shareholders

Shareholders are the owners of a corporation. They appoint directors to supervise the major decisions and policies. Shareholder will also be liable for the actions of the company.

The founding shareholders will decide how a company will be managed and owned, thus shareholder agreements are formed. Without these agreements, disputes and serious problems may arise, that may lead to the failure of the corporation.

Many things need to be considered before having a shareholders' agreement regarding share ownership, such as how many shares are owned by shareholders and how tax authorities treat share ownership.

The following are some of the main points that need to be included in Shareholder agreements:

•    The structure of the company and how it will be divided among shareholders

•    The parties involved in the agreement (shareholders or owners of shares)

•    The agreement should indicate whether the decision should be unanimous and involve all parties or just some of the shareholders

•    It should state who will be included in the Board of directors and outside the members of the board

•    It should be indicated in an agreement that shares may be cancelled if a shareholder/manager quits

•    If shareholders  are allowed to pledge their own shares

•    The managers and officers to be appointed

•    The limitations on new issues on equity such as pre-emptive rights, anti-dilution aspects, and tag-along provisions

•    How ownership buyouts should be handled

•    An agreement should also include ways how disputes will be resolved among shareholders
•    The handling of shares

•    The commitment and obligations of each shareholders

•    The rights of shareholders such as access to reports, financial statements, information, etc.

•    An agreement must state what will happen in the event of incapacity or death of a shareholder

•    In a shareholder agreement, it should be included whether a life insurance is required or not

•    The operating guidelines or restrictions should also be included such as budget approvals

•    The types of decisions that need unanimous approval of shareholders and/or the board

•    The compensation issues, the remuneration of dividend policies, directors and officers

•    The agreement should state if other agreements are also needed such as confidentiality agreements, management contracts, patent rights, etc.

•    Liability exposure

•    It should be indicated in a shareholders agreement the professional advisors of the company (audit, legal, etc.)

•    An agreement should include the shareholders' financial obligations, if any, such as shareholder loans and bank guarantees

•    It should include what could trigger the dissolution of the company

Shareholder agreements should be carefully discussed and prepared. These agreements will provide important knowledge of the objectives and styles of other involved parties. Compatibility may also play an important role in these agreements because shareholders decide together and if they are not compatible, arguments may arise between them. Any disputes should be fixed immediately. If necessary, it is better to revise a shareholders' agreement later than postpone having one in the first place.


For business concerns and other issues such as shareholder disputes, you can consult with our experienced Los Angeles lawyers. You can visit our website and avail of our free case analysis.

Article source: Expert Articles