Managing Partner
Negotiating shareholder agreements can be a complex and critical process. Any person or entity that owns shares in a company is considered a shareholder. A share represents ownership interest and may grant the shareholder voting rights, dividends, and other benefits.
Because a shareholder’s rights and responsibilities must align with the company’s operations, it’s vital to have a strong shareholder agreement that clearly outlines how the business will be managed, how decisions are made, and how shareholders interact with one another. A well-drafted agreement helps protect shareholder interests and ensures fair treatment.
What to Ask During a Shareholder Agreement Negotiation
A comprehensive shareholder agreement should describe the company’s operations, outline shareholder rights and obligations, and detail how ownership and decision-making will be handled. To ensure your interests are protected, consider these key questions during the negotiation process:
1. Who Should Be a Party to the Agreement?
Determine whether the company itself should be included as a named party. This is often best practice, especially when the agreement creates obligations the company must uphold.
2. How Will the Company Be Governed?
Clarify how the business will be managed and whether a board of directors will oversee operations. The agreement should specify the number of directors, how they’re appointed or removed, and the extent of shareholder influence.
3. What Matters Require Shareholder Approval?
The agreement should outline which company decisions require shareholder consent, majority vote, or unanimous approval. It should also clarify whether voting rights apply to all shareholders or only those with specific classes of shares.
4. Are There Restrictions on Shareholders?
Ask about any restrictive covenants such as non-compete or non-solicitation clauses, and confirm whether there are limitations on transferring ownership shares. These terms can significantly impact your flexibility and rights as a shareholder.
Protect Your Interests with Experienced Legal Counsel
Because every shareholder agreement is unique, working with an experienced attorney is essential. An attorney can ensure your rights are fully protected and that your agreement reflects your goals and expectations.
New York City Business Law Attorney
Do you have questions about a shareholder agreement negotiation? Woods Lonergan provides experienced legal guidance to business owners and shareholders in New York City. Contact our team today to discuss your agreement and safeguard your interests.