What is a Shareholder Agreement Negotiation?
A shareholder agreement is a legally-binding document between shareholders in a company that outlines key aspects of their working relationships, such as their rights, duties, and responsibilities. It not only protects shareholders, but helps them to navigate tasks such as the buying and selling of shares.
You can negotiate a shareholder agreement. Read the rest of this article to learn the best tips and strategies, as well as when to consult with a professional lawyer for assistance.
What is Included in a Shareholder Agreement?
Before you can negotiate a shareholder agreement, you need to know its key terms. Here are some of the most common.
- Contributions. The initial and future-funding obligations regarding contributions ensure proper financing for the company. This section needs to be clear so that all shareholders understand what financial commitments will be required of them.
- Dividends. This ensures that profit distribution and reinvestment complement each other, so the company can operate effectively.
- Shareholder duties. All roles and voting rights need to be explained so that disputes and power struggles can be minimized.
- Confidentiality. Any sensitive business information that’s disclosed needs to be handled with care, so the agreement should include methods for protecting it.
- Share transfer restrictions. These must be mentioned as they protect shareholders by managing who is able to purchase shares.
- Exit rules. It’s important for the agreement to outline what could trigger the selling of shares, such as bankruptcy, and what rules shareholders must follow when they exit the company.
- Amendment. Should there be any changes requested for, or included in, the agreement, these need to be agreed on by the majority to ensure fairness.
What are Tips for Negotiating a Shareholder Agreement?
Before you negotiate a shareholder agreement, you should prepare for success. Here are things to do.
Review Your Shareholder Agreement
The first thing you should do is review your shareholder agreement closely so that you can highlight any terms you wish to change. To ensure a thorough review, you should consider a legal review from a professional lawyer.
You can request a contract review on ContractsCounsel, one of the largest legal marketplaces for clients to connect with vetted lawyers. Simply post your request on the ContractsCounsel marketplace. Include some details about what you need, and you’ll receive multiple lawyer bids. You can choose the best lawyer to work with based on your requirements, and by checking their credentials, location, and years of experience.
Get Ready to Compromise
Although you might strive to get what you want, compromise is a key element in negotiations. Think about what you’d be willing to concede and what is non-negotiable to you, so you’ll be able to engage in trade-offs.
Not only does this strategy prevent dead-ends during discussions, but it ensures both parties can leave the negotiation table with a favorable outcome.
Create a Trusting Atmosphere
When the feeling between you and the other party is open and honest, this can make discussions feel much more constructive. Be open to listening to the other person’s perspective, so you can show that you’re willing to meet them halfway. Hearing them out properly will also help you see what’s important to them, which will enhance your negotiation attempts.
Seek Professional Advice
If any financial or legal issues come up during the negotiation process, you should seek guidance from a professional, such as a financial consultant or lawyer. This will serve to protect your interests and avoid mistakes.
Ask Questions
To make your negotiations successful, you should ask some important questions during the discussions. Here are some to consider.
- Governance. You might want to seek clarity over how the business will be managed to ensure stability and reduce disagreements.
- Approval. You’ll want to ask what decisions will depend on consent from shareholders.
- Voting rights. Do all shareholders have voting rights? If you’re a minor shareholder, you might wish to try to negotiate on key issues.
- Restrictions. If you’re confused about the restrictive covenants, you should ask for clarity during discussions.
Get Everything in Writing
When you agree on revised terms, make sure you draft them into the agreement. This will prevent misinterpretations, which can be common with verbal agreements, while keeping all parties accountable.
What are Shareholder Agreement Mistakes to Avoid?
To ensure you have successful negotiations and prevent issues with the other party, there are some mistakes to avoid.
- Using a generic agreement template. Although this can be convenient, it won’t suit your specific requirements, potentially lacking clarity and details.
- Not defining roles and duties. You need complete transparency with roles and responsibilities, especially if you have some active shareholders and others who are passive investors.
- Sidelining minor shareholders. Minority shareholders don’t want to feel like they’re being ignored, so focusing on a win-win discussion and considering all points of view can help to protect their interests.
Do You Need a Lawyer for a Shareholder Agreement Negotiation?
It’s always a smart move to hire a lawyer when you want to negotiate a shareholder agreement because these documents outline how a company needs to operate and how shareholders need to interact and work together. Here are some common reasons why you should work with a professional lawyer.
- They’ll identify hidden risks in the agreement that can put you at a disadvantage.
- They’ll ensure that the agreement is transparent, fair, and legally enforceable.
- They’ll check that the agreement is customized according to the business goals.
- They’ll advocate for your rights during negotiations.
- They’ll give you advice on the best negotiation strategies depending on your priorities.
- They’ll draft or review your shareholder agreement to give you peace of mind that it doesn’t expose you to risks.
- They’ll check that the shareholder agreement is aligned with the company’s governance and is legally compliant.
Where Can You Hire a Lawyer for a Shareholder Agreement Negotiation?
If you need to hire a lawyer for help with a shareholder negotiation, you can find one on ContractsCounsel. All lawyers on the platform are vetted and experienced to help you navigate negotiations with ease. You have the convenience of reviewing lawyer profiles according to criteria such as client feedback, qualifications, and location, so you can choose the best legal professional for your requirements.
