Advantage of Shareholder Agreements

Advantage of Shareholder Agreements

What is a shareholder agreement?
A shareholder agreement is an internal document that sets out the rights and obligations of company shareholders. It covers important matters concerning the management, structure, and funding of the company. This is a valuable tool for governing a company in order to ensure efficient management and the future success of the business.

When is a shareholder agreement needed?
A Shareholders’ Agreement is an important document because it provides the principles upon which shareholders intend the business to be run. Often, a shareholder agreement is drafted when starting a business in Florida. A new shareholder agreement should be created when new shareholders will have an interest in the business. You may also need a new agreement when existing shareholders with to set certain parameters that were not considered when the business was first started and the initial agreement was signed.

Such agreements are signed when forming a joint venture between two or more parties (often, the Shareholder Agreement is known as a Joint Venture Agreement in this case). Shareholders Agreements are also important when forming a company with numerous shareholders, as this document lays out each shareholder’s obligations and rights in relation to the company. This document is particularly useful when there is no majority shareholder, because of the high potential for disagreements to occur between shareholders.

What a shareholder agreement does
Shareholder agreements set out important principles upon which the business will be run. Typical agreements cover matters regarding the initial and continued funding of the business, how directors are to be appointed, and how shares in the company may be transferred. They also lay out procedures for dealing with unforeseen circumstances and provide the framework for governing the management of a company. A well-written shareholder agreement will prevent disputes between shareholders and provide ways of solving such disputes. Finally, the agreement should lay out the means for adding additional shareholders or allowing existing shareholders to transfer or sell their shares.

One advantage of a Shareholders Agreement is that it is a confidential, internal document. Unlike the corporation’s Articles of Incorporation, it is not required to be made publicly available. As such, it is commonly used to set out rights or obligations that shareholders do not wish to include in the articles of incorporation filed when starting a business in Florida. Sensitive details are often set out in the Shareholders’ Agreement rather than the company’s articles of incorporation in order to keep them private.

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2012-07-19T00:50:23+00:00 March 4th, 2012|Blogs, Legal Advice|