Virtual General Counsel LLC
Virtual General Counsel LLC

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Services Throughout Denver And The Surrounding Areas

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Things to think about when starting a new business

| Feb 11, 2021 | Business Formation |

People creating a closely-held business may have many questions. New owners might want to know how they will make business decisions if they disagree, or what will happen if one owner wants to sell their part of the business. A comprehensive shareholder agreement addressing these and other issues could keep the business running smoothly and avoid legal disputes.

The key contents of a shareholder agreement

The likely first matter for a shareholder agreement is setting forth owner voting rights in making decisions. Unless the agreement states otherwise, whoever owns more than 50 percent of the shares in the business controls the vote. Sometimes an agreement states that significant decisions, such as whether to hire or fire someone, require the approval of all owners.

To prevent unwanted owners of the business, a shareholder agreement might place limits on the ability to sell shares. For example, the agreement may permit shareholders to buy the shares of an owner who wishes to sell. Giving a majority shareholder the right to force all other owners to sell, or permitting minority shareholders the right to join in a sale, are other common components of an agreement.

Situations may develop where the shareholder agreement requires an owner to sell their shares. The agreement could prompt a sale if an owner becomes disabled, or if the business terminates an owner’s employment. If two equal shareholders cannot agree on an important matter, the agreement may mandate that one of the owners sell to the other.

A shareholder agreement also could protect the business from its former owners. Confidentiality provisions may prevent disclosure of valuable information. Forbidding former owners from soliciting customers and employees is another way the agreement might safeguard the business.

Getting your shareholder agreement in place

Every new business in Denver and around the United States is unique. A solid shareholder agreement covering the critical matters is something they should have in common. Qualified legal counsel can help entrepreneurs start a new business with a durable agreement.