Why you need a Shareholder’s Agreement

Growing your small business is exciting, but it can just as easily come to an end if the proper steps aren’t taken to protect yourself and the business. A great way to do this is by putting together a shareholders’ agreement. This can help ensure that the shareholders are on the same page, while protecting all members and the business itself.

What is a shareholders’ agreement?

A shareholders’ agreement is a formalized agreement between most if not all of the shareholders of a corporation. This agreement outlines how the business should operate, as well as the rights and responsibilities of the shareholders. A shareholders’ agreement is not the same as company articles or bylaws, which are mandatory, and a shareholders’ agreement is optional. The shareholders’ agreement is a private agreement that members of the public do not have a right to inspect, unlike the company’s articles.

Why do you need a shareholder’s agreement?

A shareholder’s agreement will allow you to implement rules surrounding the sale of shares, how to value the company, and how to resolve disputes. This clarifies the process ahead of time so that when disputes or buy-outs arise, the process is predictable and straightforward. Without such advance planning and agreements, disputes and unpredictable events such as death or disability can cripple a company.

Ultimately, a shareholders’ agreement is a system of checks and balances, ensuring all parties to the agreement are treated in a fair manner. Accounting for future scenarios and outlining the resolution methods removes any ambiguity and prevents expensive legal disputes in the future. Not only does this agreement provide protection for all shareholders but it is a great way to ensure that the best interests of the business take priority.

If you are looking at incorporating your small business, you should speak with a small business lawyer to discuss the steps that should be taken. An experienced legal professional can help draw up the framework for a shareholders’ agreement along with other essential elements in order to put down a strong foundation for your small business.