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FLORIDA ENTREPRENEUR LAW

Significance Of Drafting Shareholders’ Agreement And Things To Include

Nov 29, 2019 | Articles

You may want to consider issuing shares if your company/organization needs more money in order to run your business efficiently. Issuing shares is one of the best ways to finance a growing business as you are creating new shares for shareholders for them to partly own the company. Consider issuing shares for your company if you are looking to grow your company, if you are a sole trader and deciding to onboard a co-owner in the business, or if the option holder asserts their right to buy shares.

It is as important for all or some of the shareholders of a company to enter into a shareholder agreement that clearly defines how it is managed, the ownership of the shares and the protection and rights of the shareholders. There are so many benefits associated with shareholder agreements including protection of rights of minority shareholders, reduction in the amount of potential conflict between shareholders, can help attract investment into the business, etc.

Think carefully about how you wish to run your company when entering into a shareholders’ agreement. It’s better that you work with an experienced shareholders’ agreement attorney in Florida to ensure that your agreement works effectively.

Here are the main things that must be included in a shareholders’ agreement:

  1. Buy-sell provisions, which are often considered to be the most important provisions in the agreements, especially for minority shareholders as it sets out the rights and obligations of stockholders to purchase or sell their shares under circumstances like insolvency, death, disability, etc.
  2. The agreement should set out the consequences of a shareholder in case of a breach and should outline process for resolving disputes in the event of a dispute between the directors.
  3. The agreement should oversee meetings of directors including how meetings must be called, procedures for holding meetings, etc.
  4. Clauses which protect the business interests of the company must be included.
  5. There should be clause that states the procedure which must be followed before new shares are issued or transferred. A ‘deed of accession’ must also be executed so that the shareholders agree that the agreement is binding upon them when they become a part of a company.
  6. A clause of confidentiality should be inserted into every agreement.
  7. There should be detailed clauses restricting share transfers. This is particularly important for smaller companies where there are a few shareholders.
  8. The agreement should clearly state how the shareholders will contribute towards the working capital of the business and the implications for any shareholder who keeps from contributing in proportion to their shareholding.
  9. Clauses regulating the company’s directors and management structure must be clearly defined.
  10. Last, but not the least comes deadlock provisions, which is especially important where there are only two shareholders who each own 50% of the company’s shares.

Besides these key points, extra details may need to be added depending on the nature of a company which can be costly and time-consuming. A shareholders’ agreement attorney can help you decide what to include in your agreement and give you the legal framework to run your company smoothly thus keeping you and your partners protected.

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