Shareholder Agreements

Every corporation no matter how big or small, has shareholders. Whether the corporation is listed on the stock exchange and therefore a publicly traded corporation or is simply owned by a small group of private investors (closely held companies) without trading on an exchange, it still has shareholders. In fact, most businesses in the United States operate as “privately held” companies and they can be of any size – from small family-owned businesses to large multi-national corporations.

A shareholders’ agreement, also known as a stockholders’ agreement, is an agreement between and among the shareholders of an existing corporation that describes how the company operates and outlines the shareholders’ rights and obligations.

In other words, the shareholders’ agreement is a contract between the co-owners (also known as shareholders) of the same corporation that includes information about the privileges and protections of the corporation’s owners; it is intended to ensure that the owners are treated fairly and their rights are protected. 

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Generally, shareholder agreements are governed by the law of the U.S. state provided for in the agreement and any applicable rules and regulations arising under U.S. federal law. For example, if a shareholder agreement specifies that Florida law governs the agreement, the document is subject to the applicable rules and regulations in the State of Florida regarding contract formation and interpretation. In addition, some provisions of the contract may be governed by U.S. federal law. A shareholder’s agreement contains provisions outlining the number of shares issued, the fair price of the shares, the shareholders and their percentage of company ownership, the decision-making process for becoming a new shareholder, and restrictions on share transfers, among others.  

The shareholders’ agreement is designed to ensure that all the shareholders are being treated fairly and their rights are protected. In addition, in a shareholder agreement the initial investors can decide whether they want the corporation to have a relatively small number of shareholders, or whether they want to offer shares to the public. In this circumstance, the agreement provides the process through which outside parties can acquire shares in the company and become future shareholders. 

The shareholders’ agreement should name any officers of the corporation and set out the management structure. The agreement has a direct impact on how decisions are made in the company and every shareholder must act in accordance to their role in the shareholders’ agreement. Of course, they can establish a board of directors and a management team. 

In addition, a shareholders’ agreement is useful when making decisions about purchasing property or paying back loans borrowed on behalf of the company. The shareholders’ agreement provides protection to each shareholder against decisions taken by the most powerful shareholders. Therefore, the shareholder agreement must be a well-drafted contract that provides for fair decision making. 

The purpose of the shareholder agreement is to protect both minority and majority shareholders. Shareholders that own less than 50% of the shares have less control over the company. However, the minority shareholders can still have control over important issues such as the issuance of new shares, loans, and modification of the shareholders’ agreement by using a well drafted shareholders’ agreement. Moreover, the shareholders’ agreement benefits the majority shareholders.

We successfully plan and prepare shareholders’ agreements and protect the rights of shareholders.