A shareholders’ agreement is a legal agreement between the shareholders or stockholders in a company. The agreement regulates the relationship, rights, and obligations of the shareholders. The shareholders’ agreement often supplements the incorporation documents and bylaws of the company. Many companies use them due to many advantages such as:
- Confidentiality: Shareholders’ agreements are more like private contracts and are generally not made public, unlike most corporate constitutional documents
- Flexibility: Parties to the agreement can modify the terms more closely to meet the specific needs of the company and the shareholders
- Lower costs and easier to modify than changing corporate documents
Shareholders’ agreements are sometimes known as “stockholders’ agreements.”
Shareholders’ agreements are specifically tailored to the needs of the company and the shareholders. They may cover a wide range of legal issues and topics, and are crafted through careful negotiation. Shareholders’ agreements may cover subject matter such as:
- Ownership of distribution of shares of stocks and other securities in the company
- Control/management of the company, including election of board of directors and meeting votes
- Restrictions on interactions between shareholders and other competing businesses
- Initial contributions to the business
- Definitions of the overall purpose and function of the business
As mentioned, shareholders’ or stockholders’ agreements often vary drastically from company to company. They are also subject to frequent revisions and re-workings.
Like any contractual document, shareholder agreements can be the focus of various legal disputes and lawsuits. Common shareholders’ agreement disputes include:
- Breaches of agreement terms and provisions
- Conflicts over the scope of shareholder rights and duties
- Partnership creation within the agreement, which is permitted in some jurisdictions
- Conflicts involving one specific term or provision, such as those regarding stock distributions and percentages
Remedies for a shareholders’ agreement dispute can often involve a monetary damages award. This is meant to help compensate a non-breaching party for losses caused by an agreement violation. In many cases, the shareholders’ agreement itself may contain terms that indicate how disputes are to be resolved, such as by lawsuit or arbitration. In such cases, the terms of the agreement will be followed when it comes to dispute remedies.
Shareholder or stockholders’ agreements can often be complex and may involve much negotiating. They can also be highly specific and require careful attention to detail when drafting and reviewing them. You may need to hire a business law attorney if you need assistance with any shareholder agreement issues. Your lawyer can help with editing, reviewing, and negotiating an agreement. Also, if you need to file a lawsuit over a shareholder dispute, your lawyer can provide you with professional representation during court proceedings.