What is a Shareholder's Agreement?


Put concisely, the Shareholder’s Agreement is the agreement that governs shareholder relationships between one another and the company. This article will briefly discuss some of the various powers the Shareholder Agreement may impose upon shareholders and on the company and discuss why it is important to have a Shareholder’s Agreement in place that has been reviewed by a lawyer.

Power of the Shareholder’s Agreement.

On ShareholdersThe Shareholder’s Agreement defines the rights and involvement of a shareholder in the company, sets the limits for transferring or assigning shares to third parties, and describes the process to resolve disputes both between shareholders and the company.

Noteworthy, the Shareholder’s Agreement discusses the process for an owner to exit their position. This is important because without this event being proactively planned for, an owner’s exit can result in lengthy litigation and even dissolution of the company.

On the CompanyThe Shareholder’s Agreement sets the dividend policy of the company, the prerequisites the company must satisfy to issue additional shares, and the separation of powers between company officers and shareholders.

Importantly, from the company’s perspective, the Shareholder’s Agreement provides a rule book for the company to interact with its owners. This will decrease the risk of litigation between the shareholders and the company and allow synergy to be built between the management and the owners.

Why you should have a Lawyer review your Shareholder’s Agreement.

We strongly suggest that you have a Lawyer review your Shareholder’s Agreement to ensure it meets your specific needs. Every single business is unique, and each founder will have slightly different rules they want the shareholders and company to play by. If you use another company’s Shareholder Agreement, or a template, you will be forced to play by those rules and not your own. Contact the South Texas Business Lawyers today to assist you with writing your rules for your Shareholder’s Agreement.

Written By: Connor McQuage

Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and The South Texas Business Lawyers, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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