Why You Must Have a Shareholders Agreement

If you have taken the proper steps in bringing your company to life, congratulations. Becoming a business owner is the fruition of one’s hard work for many years, if not a lifetime, and not many can claim to have successfully become a business owner. However, many business owners ultimately overlook some important steps in the process. Chief among them: the shareholders agreement.

The shareholders agreement is an important document when forming a company. A corporation is owned by its shareholders and therefore needs to spell out what rights its shareholders will have in the shareholders agreement. By taking this simple step, you ensure that there will be clarity and certainty as to what business decisions can or cannot be made and control how those decisions are decided. You are in essence eliminating the risk for potential future conflict between shareholders and helping ensure that the company runs smoothly and concentrates on its main objective: turning a profit. Here are some benefits that a shareholders agreement will provide to both the business owners and the shareholders:

  1. Greater protection for the shareholders. A shareholders agreement outlines the rights of the shareholders providing greater clarity to the shareholders. With a clear understanding of their rights, shareholders may be more inclined to contribute additional capital to the company should the need arise.
  2. Protection for Contingencies. A good shareholders agreement can prepare a company in the event of an unanticipated change in the shareholders’ status. For example, a good shareholders agreement details procedures in the case of the death or incapacity of a shareholder. Having contingency plans in place will allow the company to continue to run smoothly.
  3. Greater Clarity. A good shareholders agreement can also include policy on the payment of dividends or who owns what rights in the company, allowing for further smooth operation of the business.
  4. Stability. A shareholders agreement in and of itself is an important vessel in showing to both insiders and outsiders that the company is run well. New potential shareholders will be more at ease knowing there is a shareholders agreement that accurately describes their rights. External benefits of a shareholders agreement may include preferential treatment in obtaining investments from outside lenders, such as banks, whose minds may be put at ease knowing your company operates with sound internal documents.

While benefits of having a shareholders agreement are potentially limitless, it is equally important to ensure that your company creates its shareholders agreement with care.  A solid shareholders agreement can help to avoid potential legal battles down the road. Call the Trembly Law Firm today to get started on your company’s shareholders agreement at (305) 431-5678. With years of experience assisting business owners, the team at the Trembly Law Firm will help you with all your business needs. Having the right legal team in your corner can make all the difference.