A shareholder agreement is an agreement between company owners which establishes the rules governing a company’s operations and the rights and responsibilities of all shareholders. In addition, this agreement gives guidelines regarding the management of the company, selling and transfer of shares, and the process of resolving disputes.
Most people setting up a company jointly do not take a shareholder agreement into consideration as they cannot foresee disputes arising. However, setting up a shareholder agreement is very important as it will protect the interests of all parties involved when major decisions need to be made. A shareholder agreement is extremely important and can involve multiple parties. It is crucial that a commercial lawyer be hired to assist in the process. The following are 4 ways a lawyer can help with shareholder agreements.
1. Law interpretation
Commercial law can prove to be complicated especially for shareholders who do not have a legal background. The intricate laws regarding shareholding may be difficult for a person without a legal background to understand and follow. A lawyer has years of experience and education in the field of business start-ups and at the onset of starting a company, the counsel and advice from an attorney can prove invaluable.
A lawyer has in-depth knowledge and understanding of commercial law and therefore they can guide you appropriately when it comes to issues related to shareholder agreements. Working with a legal expert means all the shareholders can rest assured that the agreement will be legally binding and represent the needs and interests of all involved.
2. Protects interests of all parties
Apart from articulating the relationship between shareholders and the company, a shareholder agreement also establishes the relationship between minority and majority parties, as well as between the management and the shareholders. Even if you are starting a business with close friends or colleagues that you know well and trust, business is different and people tend to behave different when their livelihood is concerned. It is important that you draft an agreement that protects every person’s interests should a dispute arise. A lawyer will actively participate in drafting the agreement so it meets the needs of everyone involved. A lawyer has the experience and expertise to review the agreement after composition to ensure all parties’ interests are well-represented.
3. Address the difficult scenarios
An attorney skilled in commercial law has experience, they understand the ins and outs of shareholder agreements, and more than likely have seen and dealt with many different situations involving them. An attorney can advise you on what kinds of issues and potential scenarios that should be addressed in an agreement and can lay out specific ways they will be addressed by parties involved. While no person expects to be involved in contentious disputes, it is a smart decision to have a course of action in the agreement that bounds shareholders so problems and disagreements can be resolved.
4. Handle legal issues
Sometimes shareholders may need to file a lawsuit or protect themselves against a lawsuit filed by someone else. Shareholding lawsuits can range from violations of federal or provincial law, employment, tax, or governmental issues. An attorney can assist in filing a lawsuit on behalf of shareholders to ensure paperwork is completed correctly and in turn preventing delays from occurring. In the event a lawsuit is filed against the company that involves shareholders, the attorney can represent all parties in court to defend against any allegations of wrong-doing. If legal issues arise among shareholders, an attorney can assume the role of a mediator to resolve any issues and facilitate an agreement that is satisfactory to everyone involved.