Monday’s= Small Business
I have been writing a series of recommendations concerning the contents of a shareholder agreement. There are three main areas and they are: control, conduct and change.
This is the third recommendation and it concerns change.
Here is a list of items to consider in drafting your shareholders agreement:
- When a shareholder wants to sell their shares what rules are in place? Existing shareholders should have the right of first refusal, you need time limits and procedures for notifying shareholders.
- Valuation of shares – the method should be a part of the shareholder agreement.
- Restrictions – shareholders may not sell their shares without permission of other shareholders.
- Death of a shareholder – determine who can inherit their shares and establish that there must be insurance. Insurance on the shareholders is called funding the agreement.
- Shareholders should have wills and the will should state that share ownership is governed by a shareholder agreement.
- Marital breakdown – agreement should cover the possibility that shareholders will divorce and make provisions in the agreement that the shares will not be transferred to a spouse. This is usually done by a clause stating that assets other than the shares of this business should be used to divide marital property.
Your shareholder agreement should be prepared by a lawyer, however you will pay a lower fee if you have resolved these questions before you sit down with your legal advisors.