What is a shareholders' agreement?

Posted by Katherine L. Taylor, AttorneyJun 01, 20210 Comments

Do you own a small corporation? Have you ever wondered whether you need a shareholders' agreement?  In this post, I'm going to explain what a shareholders' agreement is and whether you should have one for your corporation. You should know that this applies only to corporations and not to LLCs, so if you own stock in a corporation this could be for you. 

A shareholders' agreement is basically an agreement among the owners, of the company that governs and essentially sets forth all of the rights and obligations of those shareholders to each other. It sets out things like what happens if one of the shareholders wants to get out of the company, what if one of the shareholders becomes incapacitated, what happens if they sell the stock to another company, what happens if one of the shareholders is a key employee and then wants to stop working for the company. This is different from the Articles of Incorporation and the bylaws of your corporation. Those documents are necessary and required by state law; they mostly deal with the overall legal governance of the company. They don't necessarily address the relationships between the shareholders, which is why a shareholders' agreement is important even if you have those other documents. 

Okay, so you know what a shareholders' agreement is, but when do you need one? If you're the sole shareholder in your corporation, you really don't need a shareholders' agreement (although there are still some situations where you might want to have one). However, if you have more than one shareholder in your corporation, it is really important to have a shareholders' agreement, even if the other shareholder is a spouse. Even though you're married and you think you will always be aligned in your vision for the corporation, there are situations where that might not always be the case. 

You should seriously look into having a shareholders' agreement put into place because you've spent a lot of time and effort building this asset and you just want to make sure that it's protected and that there is more specificity with how you manage disputes among the owners.

KATHERINE L. TAYLOR, ATTORNEY AND CPA

5850 Waterloo Rd

Suite 140

Columbia, MD

21045 443-420-4075

443-420-4075 (fax)