Starting a new business can be one of the most exciting and rewarding experience for any entrepreneur. The process of making your dream a tangible reality is complex with many steps and boxes to check along the way. From handling the initial phases of incorporation to filing patents to protect intellectual property and more, there’s no shortage of details to stay on top of in order to make sure your business has the best foundation possible as you move forward.

One of the most important aspects of setting your new company up for success is ensuring that all vested partners have a clear mandate of expectations, responsibilities, and shared vision as to how the business should be operated. Shareholder agreements serve as an official record of such matters between business partners, serving to protect all parties, as well as the corporation itself, in times of conflict, growth, and ambiguity. Learn more about the basics of shareholder agreements below.

What Is A Shareholder’s Agreement?

In essence, a shareholders’ agreement (also referred to as a stockholders’ agreement) is a formalized arrangement between shareholders of a corporation. This arrangement covers key aspects of the business’ operations, as well as outlines the rights and obligations of each party under the terms of the agreement. Entering into a shareholders’ agreement is intended to make sure all partners are treated fairly, remove ambiguity, and provide safeguards for minority positions.

Why Do I Need One?

The fact of the matter is that shareholder disputes can be one of the largest contributing factors to the failure of a small business or enterprise, even when best intentions are at play. While few entrepreneurs enter into partnerships anticipating heavy conflict with their partners, the unfortunate reality is that differing opinions, interests and approaches can lead to significant complications without the proper checks and balances in place. Shareholders’ agreements protect the entire team against abuses of power, costly disputes, and can play a huge role in important decisions like:

  • Electing a board of directors
  • Entering into loan agreements
  • Allocating budgetary funds, and more.

Shareholders’ agreements can also protect your business in the event of an unexpected change in the core leadership team due to a sudden death, illness, or other life changing event. Simply put, entering into an agreement ensures all parties are protected and that the best interests of the business are represented moving forward.

How Do I Get Started?

As with any major decision affecting the operation of your business, sitting down with an experienced legal team to discuss the ins and outs of shareholder agreements, as well as what specifically works best for your needs is essential. At Paperclip Law, we know that no two businesses are identical. Our experts are happy to guide you through the entire shareholder agreement process, drafting up an arrangement that covers you today, tomorrow, and years down the road. Contact us today to learn more!

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