Shareholders Agreement Cost

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What do shareholders agreements cost? New business owners may ask this question when forming a corporation. Let’s explore this question and review some general information about corporations and shareholders agreements.

How Much Does a Shareholders Agreement Cost?

When a business owner incorporates their company to form either an S Corp or a C Corp, they will also need to draft a shareholders agreement. This is a legally binding document that outlines the rights and responsibilities of the corporate shareholders.

A shareholders agreement’s primary function is to protect the interests of each individual shareholder and establish a fair relationship within the company.

A shareholders agreement must meet certain legal requirements to be legally binding and protect each person. If the contract isn’t drafted correctly, it may not be legally enforceable and could leave one of the partners open to financial harm.

For this reason, many corporations choose to hire a corporate lawyer to draft the agreement. A knowledgeable attorney will know what provisions and information the shareholders agreement must have to be legally binding and enforceable.

Based on ContractsCounsel’s marketplace data, the average cost of a shareholders agreement project is $1,066 .

Is a Shareholders Agreement Necessary?

A shareholders agreement is a very important corporate document, and it is necessary. When a company is incorporated, several people or entities will invest capital into the company. A shareholders agreement protects the rights of those who invest in the business. Drafting and executing a shareholder agreement when a corporation is formed will avoid issues or confusion when setting up the business structure of the company.

Whether you are going into business with multiple strangers, or family and friends, a shareholders agreement will protect everyone’s rights and interests and you will always have a clear, fair way to settle a business dispute if one arises.

Even if a corporation has articles of incorporation that outline the company’s bylaws and policies, it is still a good idea to also draft a shareholders’ agreement for extra clarity and protection.

What Does a Shareholders Agreement Cover?

Shareholders agreements primarily cover the rights and responsibilities of the shareholders in a corporation. A shareholders’ agreement should be clear and detailed to avoid confusion and disputes.

Each agreement can be customized to fit the needs of the corporation, but all agreements need to include several key components. These components describe how the business will be run, how to resolve issues between shareholders and what each shareholder’s responsibilities and benefits are.

Shareholders’ agreements usually cover the following information:

  • Preamble . A preamble that lists the company name and all shareholders included in the agreement
  • Goals . The goals of the agreement
  • Date . The date the agreement is being executed
  • Number of Shares . The number of shares issued
  • Ownership . The percentage of ownership of each shareholder
  • Share Transfer . How shares in the company will be bought, sold, or transferred. The agreement should include the optional and mandatory buying-back of shares by the company and what happens in the event of the death of a shareholder.
  • Voting . How votes are decided
  • Share Creation . How shares are created
  • Shareholder Protection . Protections for holders of less than 50% of shares
  • Dividends . How and when dividends will be paid
  • First Refusal . A right of first refusal clause
  • Price . Fair price for shares
  • Operations . How the company will be run including information about appointing or removing directors, board meetings, management information, banking arrangements and other important financial details
  • Dispute Resolution . Dispute resolution procedures
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Shareholders Agreement Projects

Shareholders Agreement Drafting

A business owner can hire a corporate lawyer to draft their shareholders agreement. The lawyer will need to meet with the company’s owners to go over the specifics of the business and the goals of the shareholder agreement.

The lawyer will make sure that the shareholder agreement contains all necessary provisions and information so that the contract protects the shareholders, the company, and is legally binding and enforceable.

Shareholders Agreement Review

Shareholder agreement templates are widely available and can serve as a good starting point for a business owner to start their own draft. Once a draft is complete, it is recommended that the business owner hire an attorney to review the document.

Each state will have different business and contract laws that the shareholder agreement must comply with. An experienced lawyer can review a shareholder agreement to make sure the contract adheres to all applicable laws and protects the rights and interests of the shareholders.

Shareholders Agreement Dispute

Shareholders agreements can often resolve disputes before they even arise. The point of a shareholder agreement is to identify all the rights and responsibilities of each shareholder and lay out how the corporation will run and be governed. This way, when a dispute does arise, the shareholders can refer to the agreement they signed for clarity.

As long as the shareholders agreement is clear and detailed, there should be very few disputes that cannot be easily resolved.

Shareholders Agreement Drafting Cost

Hiring a lawyer to draft a shareholders agreement will cost a corporation money because it requires the time and expertise of a corporate lawyer to complete the task.

ContractsCounsel’s marketplace data shows the average shareholders agreement drafting costs to be $1,300 across all states.

Shareholders Agreement Review Cost

Even if a lawyer doesn’t have to draft the document, they will still charge for the time it takes to review and edit a shareholders agreement.

ContractsCounsel’s marketplace data shows the average shareholders agreement review costs to be $833 across all states.

How Do Lawyers Charge for Shareholders Agreements?

Hourly Rates for Shareholders Agreements

When a lawyer uses an hourly rate fee structure, they will bill their client for hours a case or project takes at a set hourly rate. The client is informed of the hourly rate and must agree to this fee structure before the attorney begins work.

Hourly rate fee structures allow lawyers to ensure that they are fairly compensated for all the time they spent working on a particular project, like drafting or reviewing a shareholders agreement.

ContractsCounsel’s marketplace data shows the average hourly rate for a corporate lawyer range from $250 - $450 per hour.

Flat Fee Rates for Shareholders Agreements

Flat fee rate structures are sometimes used by attorneys especially when they are hired to complete a specific task. In this fee structure, the lawyer will assess the project and quote the client a flat rate fee for the task. This fee is typically required to be paid upfront before the lawyer begins work.

Clients tend to prefer the flat fee rate billing structure because they know from the beginning exactly what they will be paying for an attorney’s legal services.

ContractsCounsel’s marketplace data shows the average flat fee rate for a shareholders agreement is $1,066 .

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