Key Elements of a Shareholder Agreement

Whether you are starting or investing in a business, you need to ensure the shareholder agreement protects your rights and interests. Without a shareholder agreement, the parties could face time-consuming and costly disputes as the company grows. An experienced South Carolina business contracts attorney can ensure your shareholder agreement has the essential elements to reduce the risk of conflicts and confusion as you build your company.

What Is a Shareholder’s Agreement?

A shareholder is someone who owns an interest in a company, usually as a stockholder. A shareholder agreement or stockholders’ agreement defines the relationship between the shareholder and the company. A shareholder agreement is a written contract that describes or defines:

  • The rights and roles of a shareholder
  • How shares can be purchased and sold
  • The obligations of the shareholder to the company
  • How the company will be operated
  • What happens if a shareholder divorces, dies, becomes disabled, or files bankruptcy 
  • How the company makes important decisions 
  • The process for resolving disputes between shareholders 

Whenever more than one person invests money in a company, the company should have a shareholder agreement. Even if family members and friends own all shares, the company and the shareholders need an enforceable contract to protect themselves. 

What Are the Key Elements of a Shareholder Agreement in South Carolina?

A business lawyer drafts a shareholder agreement that addresses specific issues that the shareholders and the company might encounter. The agreement can address special circumstances for an individual business, but the agreement needs to include key clauses.

The key elements to include in a shareholder’s agreement are:

  • A preamble to identify the parties to the shareholder’s agreement
  • The number and type of shares the company is authorized to issue
  • A capitalization table defining the equity capitalization of the company 
  • The rights of shareholders to appoint and remove directors
  • The rights and obligations of directors and managers
  • The matters that require shareholder approval, including any matters that require unanimous consent
  • Voting and quorum requirements, including a deadlock clause
  • The rules for transferring, selling, or purchasing shares, including rights of first refusal and what occurs in the event of the death of a shareholder 
  • The procedure and requirements for holding meetings
  • Confidentiality and non-compete clauses 
  • The rights of minority shareholders 
  • How profits and losses are distributed among shareholders
  • The procedure for valuing each share of the company 
  • “Boilerplate” clauses defining the entire agreement and severability 
  • The process and requirements for amending or terminating the shareholder agreement 

The terms and conditions of a shareholder’s agreement ensure that the shareholders are treated fairly. The agreement also protects the business by defining how significant decisions are made and how the company will be operated. 

It is not wise to use a shareholder agreement template you find online. The templates may not have the language necessary to protect your rights and interests. Furthermore, shareholder templates might not comply with South Carolina laws governing corporations, partnerships, and associations. Consulting legal counsel is the best way to ensure your shareholder agreement has all the elements to protect all parties and comply with state laws. 

Contact Our South Carolina Business Attorney for More Information 

Our South Carolina business attorney helps you protect your business interests and investments. Contact us to schedule a consultation with our attorney to discuss all your business matters.