Six Reasons Why Shareholders of a Company Should Execute Shareholder Agreements



Business Transactions and Corporate Lawyer

A Shareholder Agreement is an arrangement among the Shareholders of a Corporation describing how that Corporation should be operated and the rights and obligations of Shareholders.

A Shareholder Agreement differs from Bylaws and is most often used in Closely-Held Corporations, but can be used for any Corporation.

The following are a few reasons why Shareholder Agreements are essential:

1. Death: A Shareholder Agreement can provide for what happens to a Shareholder’s shares at death so that Probate can be avoided.

2. Disability: A Shareholder Agreement can provide for what will occur when a Shareholder is disabled, and who will manage the disabled Shareholder’s shares.

3. Redemption: A Shareholder Agreement can control the sale of shares so that the business stays in the hands of your family rather than unrelated third parties who may want to sell off your business.

4. Valuation: A Shareholder Agreement can provide for secure methods of valuing shares as well as a pre-determined value for the buy-out of shares between Shareholders.

5. Buy-Out Insurance: A Shareholder Agreement can specify terms for buy-out Insurance on the Shareholders, which allows for the efficient purchase and transfer of a deceased Shareholder’s shares, without business interruption.

6. Confidentiality: Shareholder Agreements are private documents and therefore maintain the confidentiality of a Corporation and its Shareholders.

In conclusion, Shareholder Agreements are highly relevant and can limit instances of deadlock in Corporations and promote harmony and business continuity.

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