If the question on your mind is, “Can I write my own shareholders’ agreement?“, read further. 

What is a shareholder agreement?

A shareholder agreement is a contract between you and someone who owns shares in your company. The contract outlines 

a) the number of people that can enter and exit as shareholders, 

b) the management of disputes, 

c) the process of how shareholders are compensated. 

Even if the company is doing great, it’s important to think of the worst-case scenarios – disaster management tends to always come in handy. This must be done when drafting the agreement. It’s easier and more effective to draft the agreement when the company is doing well than to not do the prerequisites. It is important to think of the issues – such as the death of the shareholder – what would happen to their shares; their stake? What would happen if the shareholder goes through a divorce – and the shareholder needs to split his/ her shares? 

These are the scenarios a shareholder agreement outlines and protects you and your company from. 

What is the cost of the agreement?

When the owner of the business incorporates their company, they must draft a shareholders’ agreement. 

The legally binding contract outlines the rights and responsibilities of corporate shareholders. The most important function of the agreement is to protect and enhance the interests of shareholders and establish a reasonable relationship within the company. A shareholder agreement must meet certain legal requirements to be legally binding and to protect people. If the contract is not drafted correctly, it may not be enforceable and leave one of the partners responsible for the pecuniary damage.

For this reason, companies talk and hire a lawyer to draft the agreement. A lawyer knows how it’s done and can draft it appropriately to make sure everything goes smoothly. On this basis, the average cost price of a shareholder agreement could vary from $1,000 to $1,500. 

If your question was, “can I write my own shareholders’ agreement?” – it is definitely not advisable to do so. 

How much importance does the agreement hold?

Very much since it is a very important business document that makes a lot of sense. When a company is incorporated, several people tend to invest in it. The document protects the rights of people who want to invest in the company. Drafting and implementing the document when setting up a business will avoid chaos when starting and organizing the business structure of the company.  

Whether it’s family, friends, or strangers with whom you’re getting into a business, a shareholders’ agreement will protect all the stakeholders’ rights and interests. 

Please do keep in mind that corporations must have articles of incorporation that outline the firm’s bylaws and policies.

What does a Shareholders Agreement talk about?

The document outlines the rights and responsibilities of the shareholders. The legally binding agreement should be specific and unambiguous to avoid disputes. 

Of course, agreements can be customized to fit the needs and preferences of the cooperation – but the basic points of an agreement must be mentioned. These points or components define the business’ vision, how it will be run, the process of resolution, and the benefits to the shareholders. 

The information that has to be covered are: 

1. Preamble: company name and shareholders. 
2. Goals: end goals of the agreement must be stated
3. Date: When is the agreement getting executed? 
4. Number of Shares: How many shares are being issued? 
5. Ownership: Percentage of ownership of each shareholder. 
6. Share Transfer: The process of buying, selling, transferring shares. How will the shares be transferred during an untimely death of a shareholder? 
7. Voting: How are votes decided? 
8. Share Creation: How are the shares created? 
9. Shareholder Protection: How are the shareholders protected? 
10. Dividends: How are the dividends paid? When will they be paid? 
11. First Refusal: The refusal clause. 
12. Price: Price of shares. 
13. Operations: How the company will operate – when directors are removed, how are board meetings conducted, information with regards to management, banking arrangement, and financial details. 
14. Dispute Resolution: Resolution process – how will it be initiated and conducted? 

More information on “can I write my own shareholders’ agreement?”

A business owner should hire an attorney to draft the agreement. The consultant will need to meet with the owners of the business to review the details of the business and the objectives of the agreement. 

The lawyer will ensure that the shareholder agreement contains all necessary requirements, conditions, and details so the document protects the shareholders, company, and is legally binding and enforceable. 

More information about reviewing the agreement

To answer the question, “can I write my own shareholders’ agreement?”

There are templates for this document widely available and they can serve as a starting point for any business owner to create their own draft. After the project is completed, the business owner is advised to hire a lawyer to review the document. 

Each state will have different commercial and contractual laws and the shareholders’ agreement will have to adapt them. An experienced lawyer can review the document and ensure the contract adheres to the rules and laws. Ultimately, the laws must protect the interests of the shareholders. 

Know more when a dispute arises 

Shareholder agreements can often resolve conflicts before they arise. They are a proactive measure. The point of the agreement is to identify all the rights and responsibilities of shareholders. When a dispute arises, shareholders can refer to the agreement they signed. As long as the agreement is specific and unambiguous, there should be very few disputes that cannot be resolved easily. 

“can I write my own shareholders’ agreement?” Our answer to that is a “no”. 

Contact eSahayak right now to know more about a shareholders’ agreement. Get your queries clarified today.