We often receive clients who wish to engage in great business endeavours with their partners, and our mandate is frequently limited to creating a corporate structure for them to start up their company and to prepare various business agreements in view of pursuing those endeavours.
A partnership agreement is one you should carefully consider. When a partnership is involved in a business start up, it is wise to quickly prepare an agreement that will define the relationship of the partners. When that partnership is comprised of individuals that will own shares in a company that will conduct business, the agreement is a Shareholders’ Agreement.
Purpose and scope:
The purpose of a shareholders’ agreement is to define the shareholders’ obligations to each other and to the company on numerous levels.
For example, a shareholders’ agreement may define each shareholders’ portion of ownership, and the role which each shareholder will fulfill within the company and the business, whether managerial or otherwise.
Shareholders may also provide, within the shareholders’ agreement, for a dispute resolution mechanism and the forum in which disputes should be resolved, should 1 or more disputes arise among the shareholders.
Moreover, a shareholders’ agreement will generally stipulate provisions which set the formula for a shareholder’s withdrawal from the company, carefully establishing an exit mechanism to redeem the shares held by the withdrawing shareholder so that the financial obligations may be to a minimum effect, and be affordable for the company and the remaining shareholders.
A shareholder’s agreement may also set provisions that will govern the unfortunate situation of a shareholder’s death or his incapacity to carry on with his role within the business due to severe health issues. In light of these possibilities, a shareholders’ agreement may create an obligation to subscribe to an insurance policy covering the death or the incapacity of a shareholder, which would help to alleviate the financial burden for the remaining shareholders and the company in such cases.
The scope of a shareholders’ agreement can be defined with the assistance of your corporate lawyer to draft one that best meets your needs and purposes. This is definitely something that should not be neglected or put off to a later time. It is best to agree to one from the start of your joint business project, while everyone is getting along. Even if there is only 1 shareholder at the beginning, a shareholders’ agreement may be useful to advise any future shareholders who may join the company at a later date as to the rules that will govern the shareholders. You may thank yourself or yourselves later.
Emmanuel Kouzelis, Attorney-at-Law
Alepin Gauther Avocats inc.
This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.