Shareholder Agreements- Houston Law Firm
Any company, depending on its type of business structure, depends on shareholder and partnership agreements that govern the activities and protects the interests of those involved. These agreements have to be legally enforceable by the State law which, in this case, happens to be the State of Texas. The binding equitable legal agreement made between the existing partners helps to significantly reduce potential losses brought about by partner disputes and distractions that may bar the parties involved from reaching their intended company goals, and affect the firm’s finances. That is why shareholder agreements are considered to be the cornerstone of business law, corporate law, consumer law and real estate law; where partnerships are involved. It is due to the legal importance and consequential financial success that this article has taken the chance to provide you with all you would need to know about shareholder agreements courtesy of RunRex.
Types of Shareholder Agreements
Partnership and shareholder run corporations and businesses are obviously not all the same. As separate business structures, they also have unique shareholder and partnership structures depending on the management choices of the parties’ involved in the shareholder agreement. There are three common forms of partnership business structures, which include;
- General, which entails an equal equity stake and level of control of the firm by the partnership parties involved.
- Limited, whereby the partners’ control and equity of the firm varies depending on the partnership agreement.
- Limited Liability, which also distributes the firm’s equity and control varyingly depending on the partnership agreement between the parties involved.
Nonetheless, whichever the form of partnership structure your business operates by, the shareholder agreement presents considerations that favor the principals and stakeholders involved. That, however, is as long as the shareholder agreement is drafted and reviewed by an experienced attorney, which can be provided by RunRex.
Shareholder Agreement Abilities
It is imperative that any shareholder agreement stipulates the share-held corporation’s nature of each share as distributed among the partners involved. That entails standardized and enforceable shareholder agreements regarding the rights and responsibilities of every shareholder, the par value of each share and their restrictions as per the sales and transfer of their stake in the company.
Some companies offer shares of stock to registered stockholders with the intent to raise the firm’s capital, encourage business performance and demarcate ownership. Some types of shares granted to registered stockholders come with voting rights that enable them to participate in the governance and strategic operation of the company. All these should be entailed in the shareholder agreement to guide the shareholder on what they can and cannot do with their shares in the development of the company.
A partnership or shareholder corporation can involve at least two to an infinite number of shareholders in a company. The shares of this company will not always be distributed equally among the parties involved, which may result in misuse of managerial power. Due to the shareholder agreement, however, the minority shareholder is protected as well. A shareholder agreement can specify the company governing decisions that may require all or specific shareholders to partake in, to alleviate the chaos and disorder that may arise when a majority shareholder uses their power to satisfy their own interests and in the detriment of their colleagues and the company.
Provisions that Protect the Shareholder’s Interests
Shareholders with a simple majority of shareholder votes have a wide range of power in the governing of the company according to company law, unless the shareholder agreement states otherwise. By a simple majority of votes, this means that the shareholder, for instance, has two out of three shareholder votes (despite the equity in stake and control of the firm) a single vote shareholder possesses. That simple majority vote enables these shareholders to execute executive decisions such as appoint or relieve managerial staff from their duties or vote to increase their salaries without the need to consult or get approval from shareholders with the minority vote. Nonetheless, with the existence of shareholder agreements, such instances are not experienced. Given that it constraints these powers to a point where such decisions can only be made with the consent of all parties involved.
Transfer of Shares
Transfer of shares forms one of the most important aspects of shareholder agreements. That is due to the possibility that something unfortunate may happen to a shareholder leading to their sudden demise or the shareholder due to personal or professional reason may decide to transfer their shares. There are some alternatives on how to go about a shares transfer which include; pre-emption provision, free transfer of the shares to the members of the shareholder’s family, or for any transfer to be first approved by all the shareholders. The chosen procedure on how to go about this kind of situation is set out in the shareholder agreement.
Shareholder agreements have been quite effective in assisting partnership corporations through fast decision-making processes and in the reduction of governance disputes, which would otherwise lead to financially and emotionally expensive commercial litigation. For whichever partnership structure your firm operates by in the state of Texas within the Houston area, you need a legally enforceable shareholder agreement which RunRex can effectively provide.