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Why shareholders agreements are important

On Behalf of | Mar 22, 2021 | Business Formation

Massachusetts businesses can choose from several different types of legal structures under which to operate. Businesses that elect to form corporations must follow specific rules. When corporations decide to go public, they will also need to have shareholders agreements in place to protect their shareholders and their corporate interests. Private companies should also have shareholders agreements to protect the interests of individual owners.

What is a shareholders agreement?

Public companies sell stocks or shares of stocks to investors to raise capital. Investors who purchase shares are referred to as shareholders. In private companies, only a few key stakeholders might be involved. Having a shareholders agreement in place can help to protect the interests of everyone involved. A shareholder agreement defines the duties, rights, and obligations of the shareholders and the company and includes provisions about how disputes will be handled, how votes will be controlled, and how future contributions of capital by the owners will be accepted.

Why is a shareholders agreement important?

A shareholders agreement can help to define the obligations and roles of the company and the duties it owes to its shareholders. It can also help a company to resolve disputes that might arise and ensure that it complies with all relevant state and federal laws and regulations.

Drafting a shareholders agreement should be included as a part of a company’s business formation documents. By drafting the right documents from the start, companies can avoid many problems that might otherwise arise. Business law attorneys might assist their clients by advising them about the different types of legal entity structures and which might be the best for their particular types of businesses.