The importance of shareholder agreements

Here are important reasons to always have a shareholders’ agreement: 

• Financing: A business will require access to capital. A shareholders’ agreement can set out how the corporation will access funds and contribute funds.

• Exit Strategies: A shareholders’ agreements provide for different exit strategies in the event that the shareholders can no longer be in business together. Exit strategies are the corporate law equivalent of a marriage contract. At the incorporation stage, prudent shareholders will consider what will happen in the event that such shareholders no longer get along. 

• Voting Rights: A shareholders’ agreement can outline how the shareholders will vote with their shares. This could involve electing, as a director, a nominee of a shareholder.

• Issuing or Transferring Shares: These provisions provide certain share sale rights to existing shareholders who want to market their shares. The shareholders’ agreement may also deal with conditions under which a corporation may issue shares from treasury, or how the shareholders may transfer shares amongst themselves, or to third parties.

Corporations that have more than one shareholder should consider having a shareholders’ agreement to set out the expectations of each of the shareholders from the beginning. Having these discussions early can save time, money and effort later on. Contact us to discuss your shareholders’ agreement.