Questions to Ask When Negotiating a Shareholder Agreement

By James Woods
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.

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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.

About the Author

James Woods is Founder and Managing Partner of Woods Lonergan. He has tried more than 60 jury cases to verdict as first-chair trial counsel and resolves complex commercial and real estate disputes valued at $1M to $100M+ for business owners, principals, and middle-market enterprises across the New York metro area. He appears regularly in the New York Commercial Division and in the federal district courts for the Southern and Eastern Districts of New York, and has argued appeals in the Appellate Division and the Second Circuit.

His practice covers complex commercial litigation, real estate and asset litigation, partnership and shareholder disputes, fiduciary breach and corporate fraud, and cooperative and condominium governance. He counsels corporate and cooperative boards throughout New York. Before founding the firm, he served as an Assistant District Attorney in Nassau County, trying both jury and bench matters.

The Legal 500 has ranked James for Commercial Disputes in its US Elite rankings for New York, and his peers have recognized him with Martindale-Hubbell's AV Preeminent rating. Woods Lonergan is ranked by Chambers Spotlight USA for Litigation: Commercial Disputes and Real Estate. James serves on the American Bar Association Committee for Commercial and Business Litigation, as well as the New York City Bar Association Cooperative and Condominium Bar Committee. His commentary on New York commercial and real estate disputes has been quoted in The New York Times, The Washington Post, Bloomberg Law, Law360, and Forbes.