Shareholders Agreements

Shareholders

Shareholders agreements or stockholders agreements (the terms mean the same thing) are a vital part of your business organization. Even though corporate law provides a background for the rights that corporate shareholders have, in closely held companies – those that are not public companies, with a small number of shareholders – these agreements are a roadmap as to how shareholders interact with each other on major points.

Examples of things that go into shareholders agreements are:

  • agreements on who to vote for as director,
  • agreements on what kind of major business decisions require shareholder approval,
  • restrictions on transferring shares (like rights of first refusal and rights of first offer) and
  • buy-sell agreements.

Sometimes, when inexperienced counsel prepares these agreements, they contain language like, “Both parties shall have a right of first refusal if either of them wants to sell shares.” On the surface, this language looks clear – no legalese! The problem is that well-written language contains much more detail. For example:

  • How long does each party have to exercise its right of first refusal?
  • What kind of notice needs to be provided?
  • What happens after the exercise period ends?
  • Can the exercise have terms that are different from the terms the third party offers?
  • How does the language work with other provisions of the shareholders agreement?

Guidance through the process is useful, since, when shareholders agree up front, they are less likely to end up fighting in court at the end. The form agreements provided by online corporate formation services often do not reflect what shareholders actually want or contain enough detail for particular circumstances. A shareholders agreement lawyer in Massachusetts (or stockholders agreement lawyer in Massachusetts) can help.