FYI, Good Commentary on Facebook by Jay Turo of Growthink


Why Shareholder Agreements are a GOOD thing

You have an offer on the table to buy your company – and it feels right, both in terms of who the buyer is and the price they are offering. But you have other shareholders in the business who may not feel the same way… and you have a shareholders agreement in place to ensure that it all goes smoothly – right?

Privately-owned companies often have multiple owners – family members, employees, outside investors or original partners are four common categories. Whatever the origins of your co-shareholders, you need the business equivalent of a prenuptial agreement with all of them if you want to preserve the wealth you are creating or want to realize on your investment when the time comes to sell.

And even if you have been “married” business-wise for a long time, it’s never too late to strike an agreement on how you and your fellow shareholders are going to behave under a few very predictable circumstances, such as:

1. What happens when one of you dies and leaves shares to their children or spouse? Will they be good co-shareholders? And will the other shareholders feel the same way?

2. What happens if you need or want to sell your shares – either because you want to retire or for pressing financial reasons?

3. What happens if you receive an offer to sell the whole company, and not every shareholder is on board with this?

The answers to these are different for different shareholders, but they need to be sorted out, and captured in a legal document, before any of the events described above happen. Waiting until after a shareholder has died, divorced or decided to retire is often too late. And if you have an offer on the table for the whole business that makes sense to respond to, don’t you want to know that there is an agreement in place that will bring everyone along if the price is right?

Thinking of buying or selling a business?

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