From marriages to business partnerships, nothing lasts forever and change is inevitable in all relationships. And just as a divorce can be expedited much easier if the couple signed a prenuptial agreement, so too can businesses do themselves a tremendous service by planning for a potential dissolution.
One step you can take to prevent lengthy litigation if your business should need to be restructured or discontinued is to craft a Shareholder Agreement. Typically, a Shareholder Agreement delineates the responsibilities, benefits, duties and expectations of each partner that are put into effect upon a company’s disbanding.
A Shareholder Agreement should have a formula that designates how shares are allocated. Typically, the agreement is set up to protect the founders of the business from the possibility of having the business land in the hands of an outside party. As such, there will be restrictions placed on the transfer of shares.
Additionally, a Shareholder Agreement will contain instructions regarding the transfer of ownership in the event of the death of one of the partners. While such cases are generally a matter of estate planning, absences of a concise Shareholder Agreement could lead to a dispute and protracted litigation.
When a business is being built, and partnerships are in their infancy, it is difficult to focus on what you want to be done in case things don’t work out. But by being proactive and planning for as many contingencies as possible, you can avoid shareholder disputes. And an experienced business litigation attorney can help you create a detailed Shareholder Agreement in an effort to protect your interests.