Reasons Why Your Business Needs A Shareholders’ Agreement
Whether you start your own business or have been operating for quite a time, you should know the different registration and continuing compliance requirements. You should file an annual report and related documents to stay in good standing. But, many stakeholders do not know the other ways to protect the business and their individual interests. Contact an attorney to learn about several options to benefit you and your company in the present and the future. You can also Click here for the same.
Reasons why your business needs a shareholders’ agreement
There are several reasons to have a shareholders’ agreement for your business.
Providing a mechanism for dispute resolution
Disputes can arise among shareholders in a business, so a shareholders’ agreement is essential to provide a mechanism for resolving the dispute. It includes provisions for mediation, arbitration, or other alternative dispute resolution methods. It is best to put a mandatory mediation clause in the agreement, which requires owners to take part in the process before filing a lawsuit.
Protect minority shareholders
Minority shareholders are weak in the majority shareholders’ decisions. A shareholders’ agreement can include provisions to protect minority shareholders, such as requiring a certain level of approval for major decisions.
Partners maintain control over ownership interest transfer.
Shareholders in small businesses always want control over who enters and departs the company, and therefore there are clauses to think about transfers. In case of death, termination of employment, or disability:
Other owners can acquire the exiting shareholder’s stakes to keep the company nearly held; and
The individual shareholder will need assurances about the ownership interest liquidity.
Clarifies the dividends and distributions
The main aim of being a stakeholder is to achieve a return on your investment so you will need details regarding the payment of dividends. One essential point is outlining the distribution process, like what triggers the payment and who is entitled to funds if there are different shareholders classes.
Plan for future events
A shareholders’ agreement can plan for future events that may impact the company, such as the death or departure of a shareholder. This can include provisions for the sale or transfer of shares, buyout options, or restrictions on share transfers.
The shareholders’ agreement should include provisions to ensure the confidentiality of the company’s information and protect it from being shared with third parties.
The main aim of the shareholders’ agreement is to provide protection, clarity, and certainty to the shareholders and to avoid any possible disputes or misunderstandings in the future.