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What you should know about Shareholder Agreements

Shareholder agreements can be powerful tools to safeguard your interests as an owner of a company. In part, it outlines the rights and privileges of various shareholder positions, and the duties and responsibilities of key members of the organization.

If you are the only owner of your business, a shareholder agreement may not be necessary. But once you have multiple stakeholders, it’s crucial that you have a set of rules for how to approach and resolve potential disagreements or conflicts if they arise.

The website Futurprenuer, an national non-profit organization that assists aspiring entrepreneurs, outlined key benefits of having a shareholder’s agreement in place. You can read their full article on the importance of shareholder agreements on their site.

Some key highlights include:

  • Selling Shares: What are the rights of existing shareholders to buy additional shares if the opportunity arises? Also, what happens to a shareholder who wants to give up his or her shares, and the rights of any interested third parties?
  • In the event of a death: What happens to your shares if you pass away? Do they transfer to another person, or a family member? Or do they become part your estate, after which designated beneficiaries can do what they want?

The government’s role is not to intervene in how a company chooses to operate itself. However, there are laws in place to make sure that a corporation is run ethically and fairly.

It’s important to make sure that your agreement, like any other contract, is drafted in accordance with any applicable laws. Because corporate law can be complex, it’s best to have a seasoned corporate lawyer review your shareholder agreement and review any shortcomings or pitfalls that may exist.

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