Why should I have a Shareholders’ Agreement for my business?
This article was originally published by The Hamilton Spectator.
Q: What is a Shareholders Agreement, and why should my business have one?
A: For any business with multiple stakeholders, even those held by family members or the closest of friends, having a well written Shareholders Agreement is extremely important. A Shareholders Agreement is essentially a contract that dictates the relationship between a company and its shareholders. When disputes inevitably occur, a good Shareholders Agreement can help ensure that amicable resolutions are met without negatively impacting the business.
Shareholders Agreements are customized to fit the specific needs of each company. They set expectations regarding important topics such as shareholder voting requirements for corporate decision making, corporate lending and borrowing requirements, and terms of employment if shareholders are acting as employees. Shareholders Agreements often set rules regarding who a shareholder can sell their shares to. Shareholders Agreements can also provide plans for what happens with a shareholder’s shares if they die. Finally, and perhaps most importantly, Shareholders Agreements can include various mechanisms that can facilitate a fair and amicable parting of ways, both in peaceful separations and in the event that a disagreement fractures the relationship between shareholders.
It is vital that a Shareholders Agreement be put into place before disputes occur. Having an effective Shareholders Agreement can help avoid costly litigation, prevent a great deal of stress and frustration, and help ensure that your business continues to succeed.
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