Understanding Shareholder Agreements A Business Owner's Guide
Jan 24 2024 0

Understanding Shareholder Agreements: A Business Owner’s Guide

Shareholder agreements are important confidential contracts between shareholders that outline how a company will run, the company’s objectives, and how milestones will be handled. A detailed shareholder agreement not only guides shareholders on what to do in various situations but also protects shareholders and defines their obligations and rights. In addition, an agreement will address the procedures that are to be followed should a dispute arise.

A comprehensive shareholder agreement can not only help protect a shareholder and their investment but also be the framework for leading a company into a successful future. If you are a California business owner who would like assistance drafting a shareholder agreement, a Los Angeles shareholder agreement attorney at the Leiva Law Firm can help.

Different Types of Shareholders

Understanding Shareholder Agreements A Business Owner's GuideEach type of shareholder wants to sign an agreement that looks out for their best interests and is written to safeguard their investment.  As a result, what elements may be included in an agreement can vary based on negotiations between shareholders and their competing goals.

Agreements for Minority Shareholders

Minority shareholders will not have a large ownership percentage of a company and for this reason, their influence and wishes may not be given much weight. An agreement that is written to consider a minority shareholder can allow them to be a more active participant in decision-making. Language should provide for transparency and a leveling out of the playing field for all shareholders. For instance, giving minority shareholders veto rights allows them to have a voice when it comes to major actions or decisions.

Agreements for Majority Shareholders

Shareholders with a large percentage of ownership will want to have greater influence and control over a company and their investment in it. For instance, drag-along rights may be beneficial for a majority shareholder. In this case, the majority can sell a company on their terms without the interventions or hindrance by minority shareholders.

Agreements for 50/50 Shareholders

With equal ownership in a company, the problem that occurs is that at some point certain decisions will come to an impasse where they simply cannot be agreed upon. This can hold up a company’s operations. To avoid this eventuality, an agreement can be written to provide for processes and rules concerning dispute resolution methods.

No matter how the shares of a company are divided, and how many shareholders exist, to keep a company running smoothly and to protect its value for shareholders, a shareholder agreement is essential.

Speak to an Attorney at the Leiva Law

If you are a shareholder in a company in California, you must protect yourself through a clear and concise shareholder agreement. The criteria to include in your shareholder agreement should reflect your specific needs and that of the business. With a detailed shareholder agreement, you may be able to avoid potential future hassles that could come about.

For help drafting a shareholder agreement in California, you may call the Leiva Law Firm at (818) 519-4465 to schedule a free consultation.

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