Shareholder Agreements

Shareholder Agreements

If you have one or more partners in your corporation, you will need a shareholder agreement. Shareholder agreements set out the responsibilities of each shareholder or shareholder-employee, the terms of exit of a shareholder, the process governing disputes between shareholders, the method for valuing shares, and, if need be, the process for removing a shareholder.

What Do Shareholder’s Agreements Do?

Shareholder agreements are said to target the 5 Ds – death, disability, divorce, divesture and dispute. Regarding divesture, clauses such as drag-along, piggy back, or shot gun clauses can ensure that the shares of a corporation’s minority shareholders will be bought out and ‘dragged along’ with the majority shareholders if a prospective purchaser comes along. Agreements also determine what should happen if a shareholder suffers from disability or death. In the event of divorce, a shareholder agreement would prevent shares from being transferred to one’s spouse upon equalization of net family property.

Shareholders agreements are integral to a corporation and ensure that exists or disputes are handled seamlessly and without contention.

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