16 Jul Drafting A Shareholder’s Agreement
Owning a business requires extensive knowledge of the laws that legally protect and limit your rights as a company owner.
Knowing the many loopholes, hidden conditions and lengthy terms and agreements that directly affect your business allows you to navigate the choppy waters without capsizing.
A shareholder’s agreement is a document that outlines the way in which a company’s stocks and operations should run according to the views of the shareholders. The document also discusses the rights and protections of those holding financial stock in the company.
When partaking in a shareholder’s agreement, it’s crucial to understand the steps and additions of this document, to ensure that you and your fellow shareholders are not being taken advantage of.
A shareholder’s agreement has four separate parts to it: the legal obligation it entails, the financial considerations it prefers, the terms of closure and the decision making agreement. Each part is important to the overall makeup of the document and legality of its services.
The legal obligations within the agreement dictate the jobs of each board member. This prevents confusion between shareholders, board members and employees in terms of everyone’s individual job and responsibility within the organization. This lowers the risk of disputes among individuals, ensuring the company runs smoothly and efficiently.
Along these same lines, the financial considerations within the document discusses the monetary sum each shareholder agrees to put into the company and the consequences if they don’t. It also entails what each shareholder makes from the company and how this money is equally distributed.
The terms of closure and the decision making agreement are usually straight forward. The terms of closure exist so that, should any shareholders wish to leave the company or negate their stocks, the company doesn’t go under. The terms essentially dictate an exit strategy for the shareholders and a continuation plan for the business. The decision making aspect looks into the hierarchy of power within the shareholders. This aspect discusses how decisions are made and who is fit to make them.
To assure that you’re not being taken advantage of in business law, having a lawyer on your side who is professionally trained in understanding these key terms and requirements makes the entire process safer and easier. Make sure the law is on your side, with a qualified business attorney.