Shareholders Agreements and Succession Planning

Shareholders Agreements and Succession Planning for the Business Owner

If a new business will be owned by two or more principals, it is crucial that the new owners consider the benefits of a shareholders agreement and the effect of not having such an agreement if a shareholder dies.

A shareholders agreement is a standard commercial agreement that confirms the agreement of all shareholders of a company as to what happens while the business is operating, what happens if a shareholder wishes to sell his/her shares, what happens to the shares of a shareholder when a shareholder dies, and how shareholder disputes are settled. Of particular importance are buy-sell provisions that ensure that a shareholder's estate is paid the proper value for the shares of a deceased shareholder, usually from life insurance purchased by the company or the other shareholders. Often, the most interested or only buyers of a portion of a company (i.e. 25 percent of the shares) are the other shareholders. A shareholders agreement seeks to avoid having third parties, such as estate heirs, inherit and own a portion of the company and its business by providing for the purchase of this portion by the company or the other shareholders on predetermined terms. Agreeing to how disputes will be handled before the dispute arises is usually also a very prudent thing to do and this also can be accomplished in a shareholders agreement.

A shareholders agreement is a critical part of a business owner's succession plan and these agreements can be tailored to set up an agreed successor to a shareholder so that a business can be passed on to the next generation. Careful discussion with a business lawyer as well as a lawyer well-versed in wills and estates law is a necessary step to a succession plan. Peterson Stark Scott can assist the owner of either a new or an established business begin and complete such a plan.

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For more information on shareholders agreements and succession planning, contact Peterson Stark Scott online, or call 604-588-9321 or 1-800-555-3288.