Legal Tip of the Day- Shareholder Agreements and the Key Provisions

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TALK LEGAL TO ME- JUST THE TIPS OF LAW:

Talk Legal to Me is here to provide you with “Just the Tips of the Law.”  Today’s legal tip is Shareholder Agreements and the Key Provisions.

If you choose to incorporate a Corporation then it is important to have a Shareholder Agreement.  While the By-Laws of a Corporation addresses the operation of the Corporation and the duties of the officers and directors of the company, a Shareholder Agreement (also known as a Stockholder or Buy-Sell Agreement) governs the relationship among the Shareholders regarding their stock ownership.  Shareholders of a Corporation ultimately determine what to include in a Shareholder Agreement and the content will depend on many factors, however, the following items should be covered:

  • Restrictions on stock repurchase and transfer, including how stockholders of a Corporation may sell their shares.
  • What happens to the shares upon the death or disability of a Shareholder, i.e. do other Shareholders have the right to purchase the Shareholder’s stock upon death or disability?
  • What procedures are used to assign value to the stock shares?
  • What happens to stock upon the breach of a Shareholder Agreement by a Stockholder?
  • Will the resolution of Shareholder disputes be conducted through mediation, arbitration or litigation or a combination thereof, as well as venue, jurisdiction and what law governs any dispute?
  • Are there equal or unequal contributions? For instance, is each Shareholder (or principal of a corporate shareholder) required to devote his or her full time to the Corporation?  If not, will additional compensation be given to disproportionate contributions among the Shareholders and in what manner?
  • What kinds of restrictions will exist? Will the Shareholders be restricted from engaging in a business in competition with the Corporation? Will there be protection of confidential information, trade secrets or intellectual property?  Will there be restrictions on solicitation of former clients or employees after a Shareholder ceases to be a Shareholder?
  • Important business decisions- what decisions or corporate actions will require unanimous consent of the Shareholders or the Directors, or require greater than majority approval of the Shareholders and Directors.

All of these things must be considered when drafting a Shareholder Agreement.  There are likely additional provisions that are important depending on the nature of the business of the Corporation.  As such, you should consult an attorney to help you with drafting your Shareholder Agreement.  Burdick Law is experienced in drafting these types of agreements and can offer you a free consultation if you contact us within 30 days of this posting.  We can be reached at either 702-481-9207 or email us at nburdick@burdicklawnv.com.

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