Shareholders’ agreements are specifically designed to avoid or resolve these problems amicably. A shareholders’ agreement is a contract signed between the investors of the company. Although each contract is drafted differently for diverse organizations, this agreement is responsible for structuring the relationship between its shareholders.
Here’s a closer look at the advantages of shareholders’ agreements:
1) Stability
Most shareholders’ agreements are written in concurrence with a company’s by-laws and its articles of incorporation. Hence, these agreements not only establish the structure and norms of the shareholders but also define the key management of the company, its board of directors and their operations. This provides an additional provision for the organisation to rely on.
Unlike articles of incorporation, these agreements are confidential and inaccessible to creditors or non-members. Hence, they also make sure your company’s private information stays private.
2) Dispute Resolution
Well drafted shareholders’ agreements provide an optimum way for the shareholders to resolve their conflicts. According to a report by Funders and Founders, 62% of all start-ups in Canada dissolve due to disagreements between their co-founders or partners.
Consulting a practised lawyer to draft your shareholders’ agreements helps you mitigate an effective strategy for dispute resolution which is specifically suited to your business. Your corporate lawyer can also provide you counsel regarding the different approaches to Alternate Dispute Resolution and help you reconcile these conflicts effectively.
3) Unanimous Privileges
This is one of the key advantages of shareholders agreements. These agreements help in maintaining accord between the majority and the minority shareholders of your corporation. They also ensure that the majority investors do not abuse their power by defining the key matters in the contract that require unanimous support of the shareholders.
These contracts describe the relationship between different shareholders and define the rules for adding or removing investors from the company. This gives you the flexibility to change your organization’s key management and helps avoid unnecessary litigation.
4) Adaptability
These contracts describe the relationship between different shareholders and define the rules for adding or removing investors from the company. This gives you the flexibility to change your organization’s key management and helps avoid unnecessary litigation.
Some clauses can be added to the contract, such as non-compete clauses for existing shareholders and dividend distribution clauses, to make the company more adaptable to future needs.
5) Restrictions on Transfers
Shareholder agreements may also include shareholder purchase or sale agreements to restrict the transfer of shares between principal members of the organization. Absent these agreements, withdrawing shareholders may transfer their shares to members or non-members without legal action.
‘s shareholder agreement defines several key terms, including the acceptance of loans and the election of the company’s board of directors. Failure to do so could result in serious lawsuits for your business. For more information on these contracts, please contact an experienced law firm.
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