Converting a business, establishing a new one and reviewing core articles are all complex processes. It often helps to break the effort down into smaller, discrete tasks.
If you are considering an organizational form more complex than a sole proprietorship or partnership, it is likely that you will need a shareholder agreement. If you already have such an agreement, it might require maintenance to ensure that it forms the appropriate foundation for your organization’s future.
Shareholder agreement overview
A shareholder agreement is, as the name suggests, a set of terms that defines complex business ownership structures. A typical agreement might include managerial duties and meeting schedules for the board of directors, the list of types of transactions that would require everyone to sign off and terms about changing or terminating the agreement.
This is a key document for the business. It works in combination with various other articles and with relevant laws to give the owners common ground with the key decision-makers for the company.
Shareholder agreements also typically provide a range of protections for shareholders. There is generally a balance between protection for the majority and the minority.
This document is often a key reference point for resolving conflicts within the ownership of a corporation. It might also resolve some issues before they start. It might achieve this by:
- Reducing the majority’s veto power
- Balancing the articles of association
- Preventing the minority from selling to competitors
In the larger context of civil law, the shareholder agreement might also be relevant to key leaders’ estate plans. For example, it could contain terms about share transfer after the death of a majority shareholder or board member.