Benefits of a Shareholder Business Agreement
A shareholder business agreement is an agreement between shareholders of a corporation describing how that company should be operated and the rights and obligations of the shareholders. A shareholder agreement differs from corporate bylaws since the bylaws do not generally control the behavior of shareholders.
The following are many of the benefits of shareholder agreements:
1. The shareholder agreement can provide for what happens to a shareholder’s shares at death so that probate can be avoided (as well as provide for provisions of life insurance to ease the buy-out requirements on family members at death
2. The shareholder agreement can provide for what happens when a shareholder is disabled, and who will manage that person’s shares and responsibilities in the company.
3. The shareholder agreement can control the sale of shares so that the business stays in the hands of family members rather than unrelated third parties who may want to sell the business in a fire sale.
4. The shareholder agreement can provide for secure methods of business valuation as well as a pre-determined value for the buy-out of shares between shareholders. This may have to be updated regularly.
5. The shareholder agreement can detail terms for the buy-out of other shareholders using Insurance policies on the shareholder(s), which allows for the efficient purchase and transfer of a deceased shareholder’s shares, without business interruption.
6. The shareholder agreement create a private documents that specify each shareholder’s responsibilities as to the business and therefore maintain the privacy and confidentiality of a corporation and its shareholders.
7. Finally, shareholder agreements can limit instances of deadlock in corporations and promote harmony and business continuity.
Contact Capital Planning Law, PLLC for your complimentary consultation to discuss your estate planning, probate, guardianship and/or real estate needs.