Many companies offer shares in their company to raise the capital necessary to grow their reach. While this is one of the many benefits associated with taking on shareholders, there are some downsides to doing so.
Your shareholders can dictate how you run your business in exchange for investing in it. They might not always be pleased with how you do things. You can take steps when drafting your shareholder agreement to manage conflict when it inevitably arises in the future.
Factors to address in your shareholder agreement
One of the best things that you can do is to assume that issues will arise. You’ll want to address how you plan to deal with problems in your shareholder agreement, including:
- Dispute resolution: Business litigation can be very costly and time-consuming. You may want to mediation to resolve your differences. You may also want to ensure that your shareholder agreement gives you the final tie breaking vote should there be a tie regarding a particular decision.
- Shareholder departures: One of your shareholders may inevitably want to unaffiliate themselves with your company at some point. You’ll need to develop a strategy for handling that, including how to value their shares and who has a right to buy them.
- The forced sale of a minority shareholder’s shares: You may want to include a clause in your agreement that says a minority shareholder can’t limit your ability to accept a buyout offer or take other measures to block particularly lucrative opportunities.
Opening up your business to shareholders can be ideal for its growth but seem like a headache when disputes arise. A business litigation attorney can not only aid you in resolving disputes when matters become contentious but also help you draft agreements that can minimize the chances of conflict arising in the first place.
