Philadelphia Business Lawyer Sarah E. Holmes
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Why You MUST Have a Shareholder Agreement If You Have Business Partners

9/16/2018

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​Why Should My Business Have a Shareholder Agreement?
 
Your business with your partner is up and running and everything is going great! You are most likely focusing on marketing, hiring and, of course, growth.  So, what comes next? I think it is fairly safe to say that a Shareholder Agreement did not come to mind in the course of your planning, but maybe it should have. Here are a few reasons why putting a Shareholder Agreement in place, earlier rather than later, is critical for those with business partners.
 
A Shareholder Agreement is Your Roadmap to Solving and/or Avoiding Disagreements
 
As much as we hate to think about it, conflict between owners can come into play. In fact one study estimates that a staggering 62% of startups fail due to shareholder conflict. One way to ensure that there is an equitable and transparent way of dealing with conflict is to have your attorney draft a specifically worded shareholder agreement.
 
Require Unanimous Approval on Key Items
 
If ownership percentages are uneven, situations can arise where the majority shareholder partner(s) can override votes of the minority shareholder partner(s). To avoid any abuse of power, a shareholder agreement can set everyone on equal footing by giving minority shareholders a voice on important issues. An experienced attorney can help you draft a Shareholder Agreement that lays out the terms for requiring unanimous approval for various items including entering into loans, election of directors and cash contributions, just to name a few.
 
Share Transfer Restrictions
 
It is very important for small businesses to balance growth. Starting small means that removing or adding a team member can have a huge impact on the entire company. Without a specific provision in a Shareholder Agreement, the law allows for a shareholder to transfer their shares freely to anyone they choose. This scenario has the potential be an unwelcome surprise for other shareholders but can be avoided by imposing restrictions for these types of transfers in a Shareholder Agreement.
Stay Flexible
The best thing about a Shareholder Agreement is that they can be tailored to your business and can include or exclude any terms you choose. This will most likely strike up some important conversations amongst you and your partner(s) and/or team members as you discuss the key topics.
 
When dealing with something as important as your business, which is also your livelihood, it is always best to be safe rather than sorry. Do yourself a favor and sit down with an experienced attorney to draft a Shareholder Agreement early on in your business planning or startup to avoid potential, future surprises and problems.

Contact our office to discuss our flat fee Shareholder Agreement packages.
 

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    Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way.  When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.

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Holmes Business Law, P.C.
​Two Convenient Locations- Main Line and Center City
40 E. Montgomery Avenue (all mail)
4th Floor
Ardmore, PA 19003
and
1515 Market Street
Suite 1200
Philadelphia, PA 19102
215-482-0285
 

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All site content is subject to copyright 2021 by Holmes Business Law P.C.
This website and its content herein constitutes attorney advertising.  Any content on this website should be construed as informational, not legal advice.  No information on this website is intended to create an attorney-client relationship.  Only a signed fee agreement between Sarah E. Holmes and the client will establish an attorney-client relationship.  Use of any information on this site is provided "AS IS" with no warranty of any kind, either express or implied.  Always consult with a licensed attorney in your own state for legal advice.
Photo used under Creative Commons from AK Rockefeller
  • Home
  • Attorneys & Areas of Law
    • Business Entities >
      • Corporations
      • Limited Liability Company (LLC)
    • Business Immigration
    • Business Purchase or Sale
    • Raising Capital & Investor Agreements >
      • Promissory Notes and Debt Financing
      • Private Placement and Equity Financing
    • Business Contracts >
      • Consulting Agreement
      • Employment Contracts
      • Independent Contractor (1099) Agreements
      • Website Terms and Privacy Policies
    • Copyright & Trademark
    • Hiring Employees/NDA/Non Compete
    • Estate Planning & Wills
    • Commercial Real Estate >
      • Commercial Lease
    • The Right Start Program
  • About
    • Speaking and Events
    • Client Testimonials
    • Privacy Policy/Terms of Use
    • Contact
  • Business Success Tips
  • Flat Fee Packages
    • New Businesses
    • Existing Businesses
    • Dispute Resolution
    • Trademarks & Copyright
    • Estate Planning
  • COVID-19 HELP