MY FRIEND AND I HAVE STARTED A NEW BUSINESS AND ARE 50/50 SHAREHOLDERS IN A CORPORATION. IS A SHAREHOLDER’S AGREEMENT REQUIRED?
Amid the excitement of starting a new business, the last thing business partners typically want to think about are things such as what happens if they are not in agreement about how the business should be operated or if one of them wants to sell their shares and exit the business. However, these are very important matters which should be thought about, and a shareholders’ agreement provides an opportunity for business partners to address these and other issues that may arise in the future.
Other considerations dealt with in a shareholders’ agreement may include what happens if a shareholder becomes bankrupt, disabled, gets divorced, or passes away. A shareholders’ agreement can outline all of these matters and more, and set out the precise procedures for dealing with them. For example, if a shareholder becomes deceased, a right of first refusal can be incorporated mandating that shares are offered to the other shareholders first, rather than passing to the beneficiary of the deceased shareholder according to his or her Will.
Although a shareholders’ agreement isn’t a requirement, it is highly recommended for corporations with more than one shareholder. Without one in place, shareholders may find themselves tangled in a dispute that may disrupt their business. Being proactive and having a shareholders’ agreement is in the best interests of each shareholder, and likewise, in the best interests of the corporation.