Shareholder Agreement Basics

"When a company is formed, its shareholders may decide on a set of ground rules over and above the basic legislation that will govern their behavior. For example, how do you handle a shareholder who wants 'out' (and sell her shares)? Should it be possible to "force" (i.e. buyout) a shareholder? How are disagreements handled? Who gets to sit on the Board? What authority is given to whom for various decision-making activities? And so on...

A company which is wholly owned by one person need not have such an agreement. However, as soon as there are more than one owners, such an agreement is essential. The spirit of such an agreement will depend on what type of company is contemplated. For example, a three-owner retail shop may adopt a totally different approach to that of a high tech venture which may have many owners. When a company has hundreds of shareholders or becomes a 'public' company, the need for such an agreement disappears and the applicable act and securities regulations then take over."

Read more, including a good list of questions to answer in completing a stockholders agreement, in this article from Mike Volker

Technorati Tags: , , , ,