What Goes Into A Shareholder Agreement

The limitation of persons who can inherit or buy shares in a limited company protects each shareholder. They do not want the original shareholders to discover that an external entity has entered and purchased shares for the sole purpose of ravaging existing shareholders. For example, if the business is a family business, the restrictions that can acquire or inherit shares become very important. If you want to make sure the business stays in the family, you need to provide opportunities in a shareholder contract. If you have a smaller business, the shareholders and the board of directors can be the same people. If the business grows, it is more likely that there will be a more diverse group of people running the business. The shareholders` pact should define the voting rights of all shareholders and the nature of the vote required to make a decision. If some decisions require only a majority of shareholders or 51%, other decisions may require a higher percentage of the majority vote for the decision to proceed. You can even decide if there are certain parameters that you want to leave to the exclusive discretion of your board of directors.

The preparation and discussion of such an agreement will give you valuable insight into the styles, objectives, etc. of the other parties. It should require an accurate and honest assessment of who will do what and who is committed to doing what. And above all, are the personal goals, goals and tendencies of the founders to take risks compatible? If a founder envisions a small, closely managed business as a possibility of self-reliance and another a dynamic, go-for-it business, that marriage will not work! Even if you`re not sure about certain things and no matter how thorough you are, you`ll miss out on something. Do so and fix it if necessary, i.e. review an agreement later, instead of deferring an agreement at trial. Our professionally developed shareholder pact model can be downloaded and adapted to your specific circumstances. You can buy our shareholder contract model online for your business. Once the business exists for several years, it will probably be necessary to transfer shares or sell them to another shareholder.