Best Practices in Drafting Corporate Shareholder Agreements

Corporate shareholder agreements are vital for many companies with more than one shareholder, especially non-public companies with a limited number of persons owning shares. The shareholder agreement typically details the rights and obligations of the shareholders with respect to the buy back of stock in certain circumstances, such as the death of a shareholder, or upon the occurrence of other events, such as retirement of a shareholder, or withdrawal of a shareholder from actively managing the company. For this reason, shareholder agreements are often referred to as buy-sell agreements or buyout agreements.

The single most important step shareholders need to take with respect to a shareholder agreement is engaging competent legal counsel to assist them and the company in asking the hard questions necessary to draft an effective document that accomplishes their purposes. Because shareholders may have different interests and desires to be reflected in the shareholder agreement, it is often necessary for each shareholder to have separate legal counsel to guide them through the process and represent their interests.

Shareholder agreements are vital because Articles of Incorporation and corporate Bylaws tend to be formulaic in nature and cannot deal with the myriad of issues a shareholder agreement needs to address.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Peter S. Bauman - Senior Commercial Litigation Attorney Callahan & Blaine, (714) 241-4444 (office) / (949) 842-1720 (mobile) | Attorney Advertising

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