When to Hire a Business Attorney for Shareholder Agreements

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What is a shareholder agreement? Why is a shareholder agreement very important to any company? Do companies need attorneys when drafting shareholder agreements? Why is it important for companies to include business attorneys when drafting and signing shareholder agreement forms? These are some of the typical questions which some of our clients ask us here at Toppins Law Firm and today we want to address the matter to the best of our understanding.

Shareholder agreement

A shareholder agreement is a special corporate document which outlines the rights and responsibilities of all the shareholders who own a share of stock or equity in a public or private corporation. The document clearly outlines the duties of each and every shareholder and in a nutshell, the document outlines how the company will be operated.

Although shareholder agreements are not legal requirements for companies, they are very important not only to the proper running company but they help secure the company’s future by preventing potential crisis which might arise. Without a shareholder agreement document outlining the roles of the shareholders, the management of the company would be all over the place and chaos would erupt at any time.

Although it is possible for companies to draft shareholder agreement documents without the counsel of a business attorney, it is always safe and wise to include a business attorney in the precarious drafting process. Here are reasons why you should always look to involve a business attorney when drafting a shareholder agreement;

Why You Should Involve a Business Attorney in Shareholder Agreement Drafting

The attorney will advise on what to do in case of an unexpected exit

The attorney will explain the possibilities of unexpected exit from the company for the shareholders. The exit could be as a result of death, disability or bankruptcy. The attorney will help the shareholders reach an agreement over what happens in the event that a shareholder unexpectedly exits the company.

Advise on shareholder funding and contributions

The other important role that an attorney plays in drafting the shareholders agreement is offering counsel on the shareholders means of funding the acquisition of shares in the company. Be it through cash or a loyalty program, the attorney will advise on the best funding mechanisms.

Roles, decision making and the management of the company

The other important role that the attorney plays, is to offer advice on the management of the company. Together with all the shareholders, the attorney will specify all the managerial positions and how the major decisions in the company will be made. Getting the balance right in such a process is very difficult and it only gets worse when the shareholders try to do this without the guidance of a business attorney.

Offer guidance on dividends and financing

The other role that an attorney plays in the drafting of the shareholders agreement, is to offer legal counsel on the payment of dividends to the shareholders. The attorney is also capable of offering insights on the conditions under which the company can seek external funding. All these terms and conditions need to be accurately drafted using the right clauses and legal boilerplate language.

Offer guidance on the transfer of shares

This is one of the most critical parts of any shareholder agreement document. This is the specific part of the agreement that details the processes which govern the transfer of shares among the shareholders in the company. In this part of the agreement, the business attorney will advise the shareholders on what should happen in the event that one of the shareholders is no longer interested in taking part in the company’s management and is looking to give up his/her shares. The clauses in this sections will offer guidance on what will happen to the shares which are given up in such circumstances and how they will be shared amongst the members or who will buy them.

Specify the exit strategy of the shareholders

What will happen to the company in the event that there is a buy-out, listing or if the company goes bankrupt? Without proper legal counsel from a qualified business attorney, it will virtually be impossible for the shareholders to agree on the fate of the company in any of the above mentioned scenarios. With a business attorney present though, the shareholders will agree and put pen to paper on what will happen in case of an exit from the company or a buy-out.

Hire Toppins Law Firm for the best Shareholder Agreements

Here at Toppins Law Firm, we appreciate the fact that every company has its own challenges and unique management and will always look to draft a custom shareholder agreement which is indisputable.

Give us a call today for more information on shareholder agreement drafting and why you should hire our business attorneys for the best shareholders agreement documents.