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Elements of a quality shareholder agreement

| Feb 18, 2021 | Business Law |

It isn’t uncommon for Connecticut companies to have multiple owners, and it also isn’t uncommon for ownership to be split in an unequal fashion. For instance, you may own 50% of the company while three other shareholders own the other 50% collectively. Regardless of how a business operates, it is important to have a shareholder agreement that can keep disputes, impasses and other negative events to a minimum.

Are minority rights adequately protected?

It can be easier to seek outside investment when new investors believe that they can play an active role in growing your business. Therefore, it might be a good idea to grant minority owners the right to appoint directors, pass resolutions or take other steps without the approval of other owners. It’s important to note that you can add a supermajority clause to such an agreement to ensure that certain actions can’t be taken without popular support.

What if a supermajority isn’t possible?

There may be times when a supermajority cannot agree on an important issue, and this may result in an inability for the business to function at a basic level. Therefore, you should strongly consider adding an impasse clause that would allow business to go on when a consensus is difficult to reach.

You might be able to keep shareholders from working for competitors

Ideally, a shareholder agreement will contain a noncompete clause that would prevent an owner from potentially taking action that would benefit a competitor. However, the clause must be reasonable to be upheld in court. A business law attorney may be able to help craft a clause that meets your company’s needs while also conforming to state law.

As the majority owner of your company, you have a right to protect your interests. However, other owners should feel as if their interests are protected as well. A legal professional may be able to craft shareholder documents that take everyone’s needs into account. These documents may also dictate how disputes should be resolved if they arise.