Why Shareholder Agreements Should Be Considered
Shareholder agreements are an important part of planning the future of any business. It's also often wise to have one even if the business hasn't yet started operating, or even if the business is a small business or sole proprietorship. They provide security to everyone involved in starting the business to eliminate disagreements and unforeseen events.
The agreement outlines various pieces of information, such as who owns the company, and the various titles of other executives such as the CEO and Director. It also helps a business value its share prices, how to handle a buyout and layout how the company will be managed. Doing so at the beginning of a business keeps everyone on the same page as the business grows and becomes attractive to investors.
One of the most common reasons to have a shareholder agreement is to keep the owners of the company from undermining shareholders. For instance you wouldn't want the shareholder to sell their stakes to someone outside the company. Businesses also wouldn't want someone to restrict share ownership if they were to leave the business.
The shareholder agreement also addresses rules for owners who do want to sell their shares to a third-party. Shareholders can be required to vote on this if it occurs and refuse it or have the first option to purchase the shares from an owner who is departing the company rather than them being sold to an entity outside the company. This is only fair since shareholders should have the right to decide whether or not they want to take on a partner in the business.
The agreement outlines various pieces of information, such as who owns the company, and the various titles of other executives such as the CEO and Director. It also helps a business value its share prices, how to handle a buyout and layout how the company will be managed. Doing so at the beginning of a business keeps everyone on the same page as the business grows and becomes attractive to investors.
One of the most common reasons to have a shareholder agreement is to keep the owners of the company from undermining shareholders. For instance you wouldn't want the shareholder to sell their stakes to someone outside the company. Businesses also wouldn't want someone to restrict share ownership if they were to leave the business.
The shareholder agreement also addresses rules for owners who do want to sell their shares to a third-party. Shareholders can be required to vote on this if it occurs and refuse it or have the first option to purchase the shares from an owner who is departing the company rather than them being sold to an entity outside the company. This is only fair since shareholders should have the right to decide whether or not they want to take on a partner in the business.
Another benefit of the shareholder agreement is to have a succession plan in place. In a way this works a lot like a will. If an owner were to retire, die, or experience some other unforeseen event it's a good idea to know who will succeed them.
Generally when an owner passes away their assets would go to beneficiaries in their will. If there is no shareholder agreement, the beneficiary could do any number of things. They could sell the shares, they could make claims against the value of the shares or sell them to a third party without shareholder approval.
A beneficiary could also choose to take on their heir’s active role in the company. If the heir happened to be someone who never had any role in the company the situation could quickly turn into a disaster for shareholders. By having a buy-sell plan in place, when an owner passes away, the company is able to buy the shares back from the heir at a set price.
Another important reason to have a buy-sell plan in place when an owner passes away is for tax reasons. There can be tax liabilities when an owner passes away. Having a shareholder agreement in place will help to eliminate these issues as well.
Experienced financial advisors and business lawyers are available to help owners create their shareholder agreement. They will be able to help owners figure out all the details, such as how much shares are worth. They will make sure that the agreement is legally binding, and help keep the business running smoothly, no matter what may occur during the life of the business. If you want to find a lawyer for advice on shareholder agreements, try this firm McVeagh Fleming in Albany, Auckland.
It doesn't matter if your company is only being planned or if it has been established for years, it's best to get started on a shareholder agreement. It will put rules in place for the how the company will operate, value the company's shares, and keep the company running smoothly despite unforeseen events. Contact an experienced law firm to get started today.
Generally when an owner passes away their assets would go to beneficiaries in their will. If there is no shareholder agreement, the beneficiary could do any number of things. They could sell the shares, they could make claims against the value of the shares or sell them to a third party without shareholder approval.
A beneficiary could also choose to take on their heir’s active role in the company. If the heir happened to be someone who never had any role in the company the situation could quickly turn into a disaster for shareholders. By having a buy-sell plan in place, when an owner passes away, the company is able to buy the shares back from the heir at a set price.
Another important reason to have a buy-sell plan in place when an owner passes away is for tax reasons. There can be tax liabilities when an owner passes away. Having a shareholder agreement in place will help to eliminate these issues as well.
Experienced financial advisors and business lawyers are available to help owners create their shareholder agreement. They will be able to help owners figure out all the details, such as how much shares are worth. They will make sure that the agreement is legally binding, and help keep the business running smoothly, no matter what may occur during the life of the business. If you want to find a lawyer for advice on shareholder agreements, try this firm McVeagh Fleming in Albany, Auckland.
It doesn't matter if your company is only being planned or if it has been established for years, it's best to get started on a shareholder agreement. It will put rules in place for the how the company will operate, value the company's shares, and keep the company running smoothly despite unforeseen events. Contact an experienced law firm to get started today.