What are the elements of a strong Shareholders’ Agreement? Why are the shareholders’ agreement and the corporate bylaws important and crucial documents to get right when forming an S Corporation, C Corporation, Professional Corporation or Management Service Organization?
A Strong Shareholders’ Agreement Protects Your Investment and Rights
The Watkins Firm has decades of experience protecting a minority shareholder’s interest in a San Diego and Southern California corporation. A strong shareholder’s agreement protects your investment and rights.
Shareholder’s rights are an important part of corporate ownership and stock interests. The Watkins Firm represents individuals and business entities in transactions involving the purchase of corporate stock as well as the acquisition of a company through a stock purchase. If you are purchasing a minority interest in a corporation there are several things you should look for in the shareholder’s agreement:
Pre-emptive Rights – The shareholders agreement should ensure that a minority shareholder has the protected or guaranteed right to purchase any new shares offered by the company. This is important to protect your minority position and the percentage of the company you own and control.
Valuation – Managing the sale of stocks within a corporation is crucial to preserve smooth operations and prevent internal discord. The shareholders agreement should specify a fair and consistent valuation process which establishes the value of stock that is to be sold or transferred.
The Right to Appoint a Director or Officers – a substantial minority interest should have the right to appoint a director or several directors who understand the minority interest’s point of view and can protect their interests. The right to appoint officers or executives ensures the minority interest has access to critical corporate decision making and input over the direction of the company.
Review and Approval of Capital Expenditures – Especially in a small to mid-sized business, capital expenditures require substantial financial resources and may consume a substantial portion of the company’s working capital. Ensure your shareholders agreement provides review, input and approval of capital expenditures.
How Will Shareholder Disputes Be Managed?
One of the other important elements to ensure a strong shareholders’ agreement is an element of succession planning. What happens when something goes terribly wrong in the life of any shareholder? What happens if a shareholder dies or becomes incapacitated? What happens if a shareholder cannot meet the requirements of a capital call? How will the interest of a shareholder be valued in the event of a divorce or personal bankruptcy of one of the shareholders?
If there is a shareholder dispute how will the dispute be managed and in what venue?
Proven San Diego and Southern California Shareholders’ Rights Attorneys
The Watkins Firm provides strong and sound advice and counsel on any issue associated with San Diego and Southern California shareholders’ rights based upon more than 40 years of experience. Developing a strong shareholders’ agreement at the formation of any corporation and keeping this crucial corporate document updated on a regular if not annual basis is one of the most important elements of corporate governance and compliance. It also protects your rights and investment and prevents shareholder disputes down the road.
If you are considering an investment to acquire a significant interest in a corporation or are seeking a strong, proven and experienced San Diego shareholders’ rights attorney we invite you to review our Podcast Episode 14 – Shareholders’ Rights and Disputes, the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
