Resources & Insights

BARRISTON BRIEFS: Why Would I Need a Shareholder Agreement?

In the new series, Barriston Briefs, Joanne McPhail talks about why you may need a Shareholder Agreement.


[Music] if you’re incorporating a company with somebody so that there are more than two shareholders in your company and we always recommend that you have a shareholders agreement it’s sort of similar to a marriage contract initially what two people are getting married they’re pretty happy with one another they’re thinking about the future and they’re thinking the things are gonna go really smoothly and they’ll live happily ever after well so goes it with shareholders typically they’re really excited about starting a business wanting to get started and not really thinking about the downside of the terrible things that might happen down the road if they hate each other or someone dies or someone becomes disabled and all of those sorts of scenarios share hunter’s agreements walk you through those what-ifs and so that you have a legally binding agreement down the road in the event that things don’t go quite as planned so for instance shareholders agreements might deal with the death of a shareholder and have an insurance in place in the company to fund a bio so that in the end shareholders and directors of companies they’re only dealing with who they set out to deal with in business but the estate of the person who’s deceased is taken care of in terms of getting a fair market value of the shares up to the date of their death so that they are given the value of the company that’s been grown up to that point by that person shareholders agreements can also talk about disputes between shareholders it’s not common but it certainly does happen where two shareholders who started out in the business are sort of feeling like they need a divorce the nice thing about a shareholders agreement because it sets out while everyone’s thinking fair-minded leave and not really thinking anything will ever go wrong the rules around how someone exits a company and that in the event of the conflict gives the shareholders a good basis upon which they can split up one walks away perhaps the other two stays with the company in a fair and reasonable way because without a shareholders agreement really if the shareholders can’t agree the only thing you can do is seek dissolution of the company and usually that’s not the best scenario when you have a profitable company it’s definitely important to work with a lawyer towards drafting the shareholders agreement because literally no two agreements are exactly alike there are lots of different options in terms of the types of agreements that you can have and the types of scenarios that you want to deal with for more information definitely do reach out to a lawyer who’s well-versed in this area