Shareholders' Agreements: How to Legally Structure Equity Ownership and Dispute Pathways
Signing a shareholders' agreement tends to be easy for the founders and investors of the business. However, the real challenge lies in those instances where the founder wishes to exit the firm, there is a need for raising capital for the business, a shareholder wishes to sell out his shares, voting rights conflict arises, or when the two shareholders disagree on the firm's decision. Ownership is not the same as control, and a list of agreed percentages does not by itself explain how the company will operate when interests diverge. A properly structured shareholders' agreement should therefore establish more than who owns what. It should set out how decisions are made, how ownership can change, what protections apply to minority shareholders, how deadlock is handled and what happens when a shareholder exits. Start With Ownership, Then Map Control The first step is to establish the company's actual ownership position. This includes the number and class of shares h...