Last Updated on December 18, 2022 by Anda Malescu
The article analyzes what happens if there is no shareholders agreement drafted when starting a company. Shareholders invest money and time into a company in return for shares. The shares have different rights and obligations attached to them, such as voting rights or dividend rights. Therefore, it is important to establish a fair relationship between the shareholders. The shareholders’ agreement is a contract signed by the owners of the company. This agreement governs the operation of the company and the relation between shareholders.
An agreement for shareholders usually clarifies issues such as rights and obligations of the shareholders, running the business, employment aspects, selling and issuing shares, dealing with disputes, conflicts, and offering protection to either the majority or the minority of shareholders.
The shareholders’ agreement is a useful tool to establish the relationship between the shareholders of the company
If there is no such document, there is a high risk for potential conflicts between the shareholders. It is better to understand what happens if there is no agreement before proceeding to invest in a company. Even if the shareholders drafting the agreement face the same risk, the existence of such a document helps them to overcome a conflict faster and easier. For instance, a shareholders’ agreement is especially useful in companies where the shares are owned equally (50%-50%).
Without a rigorous agreement, shareholders can be deadlocked and might not be able to overcome conflicts and disagreements between them.
Most shareholders want to make sure that another shareholder from the same company cannot sell their shares to a third party without first offering the shares to the existing shareholders in the company. Also, the price calculation for the sale of shares is important for the existing shareholders. Usually, shareholders want to provide in the agreement a mechanism to complete a share sale.
Another important aspect that is usually inserted in the agreement is the non-compete provision
Such clause prevents other shareholders from taking the know-how of the company and trade on their own. If there is no agreement in place, shareholders face the risk of losing valuable information and technique when one of them leaves the company. Moreover, the’ agreement also establishes the way dividends are shared. This is important when shareholders contribute differently to the business. If there is no agreement signed, there would always be a confusion on how the dividends are paid.
Finally, there are times when the shareholders do not agree on some aspects. In such circumstances it is recommended to have an agreement that provides a mechanism for settling disputes. Adding a dispute resolution clause to the agreement would resolve such conflicts.
In conclusion, it is recommended that any company with two or more shareholders have an agreement that defines the shareholders’ responsibilities, assists the company in the business operation and reduces the chances of conflicts between the shareholders.
Contact us or schedule a consultation with your business lawyer in Miami, Florida USA, to help you understand what happens if there is no shareholders agreement drafted for your company and execute one.
Malescu Law P.A. – Business Lawyers
