Owners of companies often wonder whether they really need a shareholders’ agreement. If you have more than one shareholder, you should at least consider whether a shareholders’ agreement is appropriate for your company and speak to your lawyer about their recommendations.

Shareholders’ agreements can deal with nearly any matter associated with the ongoing operation of the company unless it is inconsistent with the law. These matters include items such as the appointment of directors and officers, signing authority, matters requiring approval of directors or shareholders, what happens with a shareholder’s shares on death, loans to the company by the shareholders, resolution of disputes, compulsory buy out provisions, shot gun provisions, and endless other matters appropriate for that company. We will be presenting an ongoing series of articles dealing with specific matters to be considered throughout the process of determining whether a shareholders’ agreement is appropriate and, if so, what should be included in that agreement.

One of the more important considerations for a company is to determine what should happen with a shareholder’s shares in the event of a death or permanent incapacity of that shareholder. Are those shares to be purchased by the existing shareholders? Are they to be repurchased by the company? Should a surviving spouse have the right to purchase those shares if they wish to do so? At what price should the shares be sold? What is appropriate for your particular company will vary depending on the specific circumstances such as whether there are multiple individuals actively engaged in the business, whether the spouse has any interest in acquiring the shares, whether the company or surviving shareholders would be able to afford to purchase the selling shareholder’s interest and, if not, how can the financing piece be resolved, along with many other factors related to your particular business.

Many people going into business together truly believe that a dispute will not arise and, hence, an agreement dealing with a breakdown of that relationship is not necessary. Similar to discussions relating to marriage or cohabitation agreements, having an agreement in writing in advance of a dispute can help all of the parties work together more amicably knowing that there is a predetermined approach for resolving any differences.

The information provided is general information only and should not be relied upon without speaking with your professional advisors. If you are a business owner and have more than one shareholder in your company, we would be pleased to discuss your particular situation and discuss the benefits of having a shareholders’ agreement in your circumstances. Please contact our office if you would like assistance.

This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637

Una Gabie: una@touchstonelawgroup.com

Jennette Vopicka: jennette@touchstonelawgroup.com

Danielle (Dani) Brito: danielle@touchstonelawgroup.com