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3 essential elements to include in shareholders’ agreements

Starting a business is as much about planning for success as it is about responding to challenges. This is why savvy business owners are serious about taking steps to ensure they are well-positioned to deal with triumphs and failures, and this can include having effective start-up documents in place.

As an example, we will look at shareholders’ agreements. If you are starting a business, then this document can help you clarify your goals, identify resolutions and navigate disputes in a manner that protects the business. There are several ways to do this within a shareholders’ agreement.

Dispute resolution methods

In the event of a dispute, an agreement can state the manner in which parties must resolve the dispute. For instance, will you mediate the dispute or go through arbitration? Are there certain situations in which litigation will be necessary?

Buying and selling rules

As this article on constructing an agreement notes, a shareholders’ agreement typically provides clarity on buying, selling or transferring shares in the business. This can and should include pricing of shares as well as when other parties can become shareholders. You would also be wise to have in place procedures in the event a shareholder passes away, resigns or is fired.

Rights and responsibilities of shareholders

A shareholder’s rights and responsibilities will vary based on numerous factors, so defining them with an agreement is prudent. You might include information on voting rights, management obligations and fiduciary duties.

Of course, there could be numerous other details and clauses you include in your specific agreements, but these are three particularly important ones that can be helpful to prevent and address any disputes that may arise.

The steps you take to protect your company from the very beginning can be essential in protecting it as your business grows and changes. Discussing shareholders’ agreements and other startup documents with an attorney can therefore prove to be a wise investment for your future.

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