Shareholder agreements are an essential part of any business. It is important to sign one before you enter a partnership agreement with another party or person. The agreement will lay out a number of key points that the two or more shareholders should agree upon, including how much equity each party will own in the company, when and how dividends are paid, how voting rights are handled and many other points. A shareholder agreement can save you time and money should there be disagreements between shareholders later on down the road because it has already been spelled out in detail what everyone needs to do if such an event were to occur.
Benefits of shareholder agreements
- Ensures all shareholders are on the same page
Before you get into business with a partner or a group of partners it is important to have everything spelled out in detail and documented for all parties. A shareholder agreement will lay out everything involved in the business, how it will operate and what each party is responsible for.
- Protects your interests
A good shareholder agreement can ensure that if you want to leave the business then you are allowed to do so without being sued by your partner(s). It also protects you from being forced out of the business by having a clause in the agreement that states that every shareholder has the right to buy-out their partner(s).
- Manage disputes
If one of your partners is unhappy and threatens to file a lawsuit against you then your shareholder agreement can help protect you from being sued. It will lay out what legal actions each party can sue for should there be conflicts between them and how long those lawsuits will last.
- Protect future business partners
You should always need to tell potential partners about your shareholder agreement before you do business with them because it will outline everything regarding how things are going to be done in your new venture together.
Questions to consider when drafting a shareholder agreement
When you are drafting a shareholder agreement determine how the business will function and how things will be done. The following are some important questions to ask yourself before getting into any partnership or corporate structure:
- Will the business be a corporation or a sole proprietorship?
If it is a sole proprietorship then you can run the business as you please. If it is a corporation then you will need to get approval from your state’s corporate board before you can start up your company. You have to have at least one person on the board of directors who has been approved by the state so that they know what things are going on in your venture.
- Will you have a board of directors?
If it is a corporation then you need to have a board of directors. It will be made up of three people at the most, who will be in charge of making any major decisions for the company. You also need to fill certain positions such as treasurer and secretary before you can take on your first client.
- Will everyone involved in the business get an equal share or an unequal share?
It is important to discuss what each shareholder should get from the beginning and try to stay with that plan, unless there is something exceptional about one person’s performance compared to another’s. An investment banker, for instance, may be worth more than another person working at their company.