It is true.
You don’t own anything that isn’t in writing, and your rights are only as good as what is in writing.
This is especially true when it comes to shareholder rights, obligations, and responsibilities.
A shareholder agreement is a contract that is between the shareholders of the corporation. The shareholder agreement can address many, many different items depending upon the terms of the company and the agreement. For instance, a shareholder agreement will normally address the valuation of the company, the valuation of each share, how much each shareholder owns, responsibilities of each shareholder, what to do in the event of a deadlock, and process for termination, sale, surrender, and transfer of a shareholder agreement.
If you ever plan on incurring private debt or taking money from investors to grow your business, particularly important with start-up businesses, the shareholder agreement is going to be extremely important. This agreement can determine the decision-making authority for each shareholder. A shareholder agreement can also protect the company against actions made by certain shareholders.
Let’s take a look at the story of ABC Corp. This was a company that had a very competent board of directors and a number of shareholders, including minority shareholders. In this company, the board of directors made a poor decision that caused the company $250,000. Although, bad decisions will harm businesses from time to time, the board of directors continued with their same course of action in order to earn back their lost revenue. Unfortunately, the result was now a $2.5 million loss.
Unfortunately, there was no shareholder agreement. The minority shareholders hired counsel and filed suit against the company.
This is just such the matter where a shareholder agreement could have been very beneficial to both the shareholders and the company. It would spell out the valuation, the shares, the responsibilities, the obligations, and what decisions would entitle the shareholders to have a right for a change at the board of directors.
If you have a corporation, you need a shareholder agreement to ensure that your business is always protected.
Your rights are only as good as to the extent they are written down.
But, don’t forget, a shareholder agreement is not an item that should be taken lightly. Although there are forms available online to help you, many times they are just simple and basic terms which may not apply to your specific situation. A shareholder agreement should only be created after you have secured a business and corporate attorney as your trusted legal counsel to assist and help your business stay protected and grow.
In addition to making sure your business is legally sound, having your own business attorney and trusted business legal counsel on call to guide you through the legal maze that businesses face is just as important as having the right accountant. What is the point of minimizing taxes, if your business won’t survive a lawsuit, a regulatory investigation, or any other number threats existing in the weeds that can destroy your business.
Making this choice can often mean the difference between just paying a few thousand dollars and paying several hundred thousands of dollars in legal fees.
If you are an entrepreneur and a business owner, please call your Nashville Tennessee Business Law Attorney today to discuss your legal issue.
Give us a call at (615) 490-0477 or Click Here to Schedule a time to discuss your business or corporate law legal issue and let’s talk about how the right business attorney can ensure your growth and protection now, and into the future.