By David Hobbs
Shareholder agreements are usually entered into by all the shareholders, though not always. The agreement is usually in writing and signed by the shareholders.
Shareholder agreements vary from corporation to corporation as to their terms but, usually deal with certain basic issues as discussed below.
Shareholders who sign shareholder agreements restricting or assuming the powers of directors to supervise and manage the corporation may also be incurring liability and risk to an equal degree as directors.
The relationship of shareholders in a small corporation can become similar to a partnership with each person having a significant say. Family held, small corporations are unique as to the application of law to interpretation of shareholder rights.
Minority shareholder can protect themselves against the power of the majority by the terms of a shareholder agreement, requiring for example, a special resolution, unanimous resolution or veto power for certain types of decision making.
A shareholder agreement may contain a right to sit on the board of directors or have an appointee to the board. Obligations of the corporation impacting shareholders can be shared according to agreement rather than percentage shareholdings. Contribution of funds to the corporation and consequences for refusal or inability to contribute can be defined by the shareholder agreement. Future purchase or sale of shares can be defined as to rights of existing shareholders to participate or approve in any change in share ownership.
Shareholder agreements may place restrictions on share transfers so as to control who may become a shareholder in the corporation. Such terms are separate from the articles of the corporation. Shareholder agreements may contain rights of first refusal before sale of shares to an outside party. Rules may be established regarding transfer of shares on death, divorce, resignation, dismissal, bankruptcy or disability of a shareholder. Sometimes life insurance is purchased to fund payment obligations on share transfer.
Other shareholder agreement provisions may include non-competition, confidentiality, dispute resolution mechanisms and details for amendment to or termination of the agreement.
Hobbs Giroday has many years of experience assisting corporations with their corporate structure and advising and acting for shareholders, officers, directors and corporations in commercial, corporate and shareholder disputes.
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