Shareholder Agreements

Shareholder Agreements are a vital part of every corporation. These Agreements act as a rulebook to help govern the shareholders’ rights, responsibilities and obligations. It also creates a system to handle shareholder disputes.

One of the unfortunate parts of corporate law is that there is very little assistance with shareholder disputes. The corporate laws give corporations a great deal of control and flexibility to govern themselves, however, this can create an issue in the future if there is no agreement on how to conduct the affairs of the corporation.

The typical issues that Shareholder Agreements address are:

Share Transfer Restrictions: This can restrict the ability of one shareholder to simply sell their shares on the public market. This can help make sure the other shareholders have some ability to control who takes over a shareholder who has left.

Protection of Minority Shareholders: Although the corporation acts often have rights to protect minority shareholders, you have the freedom to make them simpler, more or less strict and clearer to ensure that your corporation is not bogged down by expensive litigation.

Governance: This can clearly organize how the company is managed, who has authority to bind the corporation into contracts and who has the rights to use the corporate bank accounts. This can also lay out how major issues of the corporation may be handled, including but not limited to sale of major departments of the corporation.

Dispute Resolution: This can establish a mechanism to resolve shareholder disputes without having to pay for expensive litigation. Ex. “shotgun” clauses, “put and call options” and “buy-sell” options can help a corporation have a disgruntled shareholder leave, without the expense of going to court and getting a court order for removal.

Exit Strategies: This can establish what to do when a shareholder wishes to leave the corporation, or when a shareholder dies or loses their mental capacity. Ex. “Drag-Along” clauses can help majority shareholders compel minority shareholders to sell their shares to prevent minority shareholders from preventing a sale.