Creating a Shareholders’ Agreement

Business owners who plan to divide the shares of their business among trusted professionals will need to draft a shareholders’ agreement. Though the exact wording and finer details will vary from one company to the next, there are some key steps to keep in mind when creating such an agreement.

What is a Shareholders’ Agreement?

A shareholders’ agreement is a carefully crafted arrangement between the company’s various shareholders, in order to lay out the details of how the company should be organized and run. In this agreement, the shareholders also describe their rights and company obligations as they pertain to the organization. The agreement will also provide legal experts with detailed information regarding the stocks or shares that have been, or will be, issued. Although the agreement is often tailored to a company, once the size and projected growth of the company has been taken into consideration, restrictions may occur.

Why Draft a Shareholders’ Agreement

These agreements can efficiently clear up confusion regarding shareholders‘ roles and obligations. Business owners should always begin by designating parties to the company’s shares. Once addressed, terms such as shares, bylaws, boards, and resolutions should be defined carefully for the shareholders. From there, the business owner should describe the structure and nature of the company before outlining rules, rights and obligations. All to avoid common pitfalls like definition ambiguities and uncertainty regarding obligations. The business owner can choose to be as forthcoming as they would like as they draft these sections.

Professionals who believe that they are having trouble with the process should not hesitate to seek legal assistance as soon as possible. A lawyer can help with not only the drafting of a Shareholders’ Agreement, but also simplifying the language, and providing the shareholders with a comprehensive series of rules and guidelines. A lawyer can also help resolve misunderstandings in the agreement as well.