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Peace
of Mind with a Shareholders Agreement
What
is a shareholders' agreement?
A shareholders' agreement is a written agreement
made between a company and one or more of its shareholders.
You make a shareholders' agreement in order to enhance or modify
the relationship that exists between a company and its shareholders.
By virtue of the company's incorporation under the Company Act
(or the new BC Business Corporations Act), some parts of the
relationship between the company and its shareholders are already
set up. But this structure only goes so far. For some people,
this basic structure will be enough; they don't need a shareholders'
agreement. Others, though, will want to customize.
Think of a house. Many people live adequately in a house that
has a basic foundation, walls, roof, doors, windows, plumbing,
electrical systems, and so on. But you may want to make the
house your own, by customizing how each room is set up, how
the decorations appear, or by customizing certain house systems.
You install an alarm, you set up an intercom system; and maybe
a in-wall vacuum system. You customize your house for added
comfort, or security, or protection.
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What
does a shareholders' agreement cover?
With companies, a shareholders' agreement allows you to do this.
Typical provisions include setting out: who the directors and
officers will be; whether the directors have limits on certain
actions they might take; how the company will be financed (that
is, how the shareholders will put money in to the company) and
how money can be taken out of the company; what will happen
to a shareholder's interest in the company upon death or incapacity;
rules for transferring shares; and, sometimes, an arrangement
for getting out of the company by means of a forced buy-sell
arrangement.
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How do
I know when I need one?
Some people won't need a shareholders' agreement. In most cases,
one person company doesn't need one - for obvious reasons (unless
you're going to start disagreeing with yourself; and in that
case, get yourself a doctor, not a lawyer). With the new BC
Business Corporations Act, there are circumstances where even
a one person company might want to set up a shareholders' agreement.
If you're interested, please call or e-mail us for more information.
And some companies with more than one shareholder may not want
one. For example, where all the shareholders are members of
the same family: husband and wife, and so on. However, even
in a family, it can be wise to set out business arrangements
in writing. For couples, shareholder agreements can be used
to structure a company relationship to deal with a separation
or divorce.
For people who are forming a company with non-family members,
a shareholders' agreement is often a wise idea. In the ideal
case, even the process of creating the shareholders' agreement
with the company lawyer results in increased trust and greater
understanding between partners, making for a stronger business
relationship. And then the agreement is signed and put into
a drawer where it is never needed, and everyone goes on to make
a lot of money. But the agreement can be used, where the relationship
breaks down or where changing circumstances require a change
in the business relationship.
The time to make an agreement is right at the start of the
relationship, when the company is formed. Waiting until some
time has passed can make it harder to make an agreement, as
its parties may be unwilling to change how things are being
done.
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Who
will be a party to a shareholders' agreement?
As with any legal agreement, only the persons who are named
in the agreement and sign it will be legally bound by the agreement.
With most companies, which have only a handful of shareholders,
all of the shareholders will be required to enter into the agreement.
Companies with more than, say, a dozen or two dozen shareholders
may find it more practicable to have an agreement between key
shareholders with perhaps no agreement or a narrower agreement
between the other shareholders.
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How
long is a shareholders' agreement?
Your shareholders' agreement can be as simple or complex as
your needs or circumstances require. A usual sort of agreement
is five to ten pages long. More complex agreements can be two
or three times as long.
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