SHAREHOLDER AGREEMENTS

THE PROCESS

SHAREHOLDER AGREEMENTS

HAVING AN EXIT STRATEGY BEFORE THE PROBLEMS START

Where you have a corporation with 2 or more shareholders (owners), there is always the possibility that you and your business partner(s) will no longer be able to work together effectively. What then?

A properly drafted shareholder agreement is like an insurance policy, setting out among other things:

a mechanism to allow the parties to go their own separate ways where they can’t reach an agreement between themselves;
a mechanism to buy out the interest of a shareholder who dies or becomes totally disabled;
the rights and responsibilities of each shareholder in the operation of the company; and
the ongoing rights and responsibilities of shareholders after they’ve departed from the company.

Many people getting into business together choose to put off the drafting of a shareholder agreement because of their various other start-up costs and because they are getting along fine – maybe they’re long time friends or family members. The pressures and dynamics of running a business together can sour personal relationships. The time to negotiate a shareholder agreement is before the parties stop seeing eye to eye, and there’s no time like the present.

The cost of drafting a shareholder agreement varies depending on the complexity required, the degree of customization the parties wish to have and the degree of back and forth negotiation needed to reach an agreement.