Shareholder Agreements

Shareholders’ Agreements

If you’re not deterred by corporate formalities, including record-keeping, you should consider registering your business as a “closely-held” corporation, such that you are maximally protected against personal liability and double taxation. Should you choose this route, you will first have to file your corporation’s Articles of Incorporation with the Florida department of state. And if you are not your corporation’s sole shareholder, you should also draft a shareholders’ agreement.

When a corporation has two or more shareholders, your attorney should prepare, at or shortly after you file the Articles of Incorporation, a Shareholders’ Agreement. That agreement is the document that flushes out the shareholder’s responsibilities to each other. A shareholders’ agreement may be key to the successful operation of your corporation First and foremost, the shareholders’ agreement is NOT filed with the state and, as such, is not made available to the general public; instead, it is a private contract between shareholders. You can thus insert into your shareholders’ agreement whatever terms you would prefer to remain confidential from third parties. Furthermore, the shareholders’ agreement is more easily administered, revised/ amended and terminated than the Articles, and allows for flexibility in a business structure that is known for its rigidity. Also, you can provide for contingencies in your shareholders’ agreement, such as for arbitration instead of litigation in case of shareholder disputes, etc. And, of course, if your shareholders’ agreement is comprehensive, you can avoid the consequences of state-imposed application of its set of default rules to resolve shareholders’ differences.

To ensure that your shareholders’ agreement addresses the problems likely to arise in your course of business, you should hire a licensed Florida attorney who is experienced in the practice of corporate law to draft it for you. Your shareholders’ agreement MUST be consistent with all of the provisions of your Articles; if the two documents conflict, the Articles trump the shareholders’ agreement. At the very least, your shareholders’ agreement should outline the following:

• The nature and amount of initial contribution of capital/ funds to the business, and the method by which future contributions are to be made,
• Non-competition terms,
• Stock valuation formulas,
• Buy-out terms and conditions (Buy-Sell Agreement),
• The governing law of shareholders’ disputes,
• The ownership and voting rights of the shares, including restrictions on their transfer, preemption rights, rights of first refusal (i.e. shareholders’ rights to maintain their fractional ownership of the corporation by buying a proportional number of shares of any future issue of common stock), etc., and
• The manner of control/ management of the business, such as the method for electing directors/ officers, when to impose super-majority voting requirements (i.e. when/ what percentage of shares must vote in favor of crucial matters).

Because the shareholders’ agreement is so vital to the day-to-day operation of a corporation, it should be prepared immediately after filing your corporation and it should be kept in a secure, yet easily accessible location, and referred to periodically. You need NOT file your operating agreement with the state of Florida.

Contact an Experienced Business Law Attorney

If you would like more information about this topic, contact Lawrence Tolchinsky to find out how he can help you. You can contact him by phone at 954-458-8655 or by e-mail through this web site to schedule an appointment and learn more about title insurance. He offers a free initial consultation.

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