PROBLEMS WE SOLVE

Shareholders of a Privately Held Corporation Would Like to Add Another Shareholder and Need a New Shareholder Agreement Drafted

You will need a shareholder agreement if you have one or more partners in your corporation. These agreements outline your small business’s operations and management as well as the role that each shareholder plays. Officially defined rules provide a roadmap to navigate corporate disputes and prevent legal battles over shareholder rights.

When you add a new shareholder to the corporation, roles and responsibilities can change, so you’ll need a new shareholder agreement drafted. It is important to note that these agreements are different from your company’s articles of incorporation or bylaws: bylaws are drafted when the business is founded and are applicable to all, whereas shareholder agreements are drafted by those who own shares in the corporation.

Which Businesses Need a Shareholder Agreement?

In general, S corporations and small businesses benefit the most from shareholder agreements. Startups and small businesses typically have stockholders who hold a greater ownership stake in the enterprise, so a shareholder agreement should be created to ensure fair treatment, create rules for the business, and protect assets in the event of dissolution.

What Does a Florida Shareholder Agreement Cover?

The shareholder agreement covers all aspects of the company and its stock that directly affect shareholders. Below are some key areas that an updated agreement will have to address.

1. Qualifications for Becoming a Shareholder

When it comes to who can invest in a large company, very few rules exist. Smaller companies, on the other hand, are usually privately owned and therefore have more control over who can become a shareholder. Rules in the agreement can protect the company from shareholders who may sell their shares to an outside entity.

2. Ownership Transfer Between Shareholders

You can specify that shares in the business may only be sold to other shareholders, to avoid outside entities getting involved and changing the structure. If a shareholders passes away or loses their assets, their shares can go to a designated person or divided evenly among other shareholders.

3. Shareholder Rights and Responsibilities

Shareholders have certain rights and responsibilities as owners. The shareholder agreement can designate who has voting rights, what areas of the business they can control, what their responsibilities are, and what protocols will be followed if they don’t fulfill those responsibilities.

4. Protection of Proprietary Information

The company’s shareholders are allowed to attend meetings and view many sensitive documents. They can also discuss private information about the company. To protect the business, a shareholder agreement can set limits on the amount of information shared among shareholders.

5. Provisions for Handling Disputes

It is impossible to avoid disagreements, no matter how thorough the shareholder agreement is. An agreement will usually end with a description of the proper protocol for handling all disputes. Options include:

Negotiation
Mediation
Arbitration
Litigation (usually a last resort)

Does Your Shareholder Agreement Need Updating

If you are a small, privately held corporation, an experienced business law attorney will help you draft and maintain a document that can protect shares, clarify everyone’s responsibilities, and minimize the damage of a dispute. Attorney Rich Sierra at the Florida Small Business Center will help you prepare and manage an agreement that can set your enterprise up for success. To schedule a consultation, call the Florida Small Business Center at 1-866-842-5202.