A Shareholder Agreement as a Sword and Shield

A shareholder agreement is a contract between and among the shareholders of a corporation and potentially the company as well. Shareholder agreements can do all of the following:

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  • create limitations on the number and type of shareholders that may own a company’s stock;
  • create the mechanisms to allow existing shareholders or the company the option to acquire any shares prior to their being sold or transferred to a new shareholder;
  • ensure that certain administrative functions and securities laws are complied with throughout future transfers of the stock;
  • create unilateral or mutual obligations and duties on the part of shareholders or the company;
  • outline the methods and process for determining fair market value of the company’s stock and any related disputes; and
  • establish programs for shareholder liquidity.

All of these considerations and related provisions may impact the value of a company’s stock and the ability to ever realize that value. Taking the time to understand the shareholder agreement is of critical importance for all shareholders. Taking the time to periodically review the shareholder agreement and ensure its ability to achieve its intended purpose and provide the greatest benefit to the company and shareholders is even more important.

For more information on a shareholder agreement related to your company or institution contact William D. Sutherland VI.

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