Shareholder and Stock Purchase Agreements | Tressler & Associates
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Shareholder and Stock Purchase Agreements

Shareholder and Stock Purchase Agreements

Shareholder agreements are arrangements between all the shareholders in a business. This protects not only the interests of the shareholders but also the business and its long-term success. It contains and defines the rights and obligations of the shareholders so they are properly invested in the business, but dissuaded from impeding its growth. Because it has such long-lasting effects, a shareholder agreement must be unanimously agreed upon by the initial shareholders. This makes it critical to have legal counsel and advice from entrepreneurial law attorneys who can make sure no one is being shortchanged.

Similar can be said about stock purchase agreements. These arrangements define all the terms and conditions related to the sale or trade of shares in a business, and shares alone. The sale, trade, and/or purchase of a business’s shares is important to the future of the business. It affects who has a say in the business, how much say they have, and if they can help or hinder the business’s future. Because of this, stock purchase agreements are important to consider when writing shareholder agreements. The opposite is also true, because stock purchase agreements may be restricted by a company’s shareholder agreement.

So when you begin your business and create your shareholder agreement and eventually start needing stock purchase agreements, you want experienced Tennessee entrepreneurial law attorneys, like those at Tressler & Associates.

What Should a Shareholder Agreement Contain?

Shareholder agreements are not the same as company bylaws, so they’re not going to have rules that the majority of the company will abide by. Instead, they contain things like:

  • The number of shares issued to each shareholder when the agreement is written.
  • An outline of how shares translate into percentage ownership of the business.
  • What restrictions, if any, on the transfer of business shares.
  • The existence or non-existence of pre-emptive rights to purchase shares and maintain their ownership percentage.
  • Procedure on how shareholders would be paid should the business ever be sold off.

What Does a Shareholder Agreement Do for the Shareholder vs. the Business?

Shareholder agreements protect both the shareholders and the business by assuring that shareholders are treated fairly across the board to start. While other documents dictate how the business will be run, the shareholder agreement should describe this to the shareholders. This means that the agreement also has an informational component and does not necessarily dictate terms, so much as explain and state terms agreed upon in other documents.

This is important so that shareholders cannot turn around and claim that the business never properly informed them of their rights. When a shareholder signs the shareholder agreement, it’s confirmation that they understand everything they need to know about the business. This disables and creates legal leverage for the business to use against a shareholder who knows a lot about the business’s workings.

This makes it all the more important for your business’s shareholder agreement to be written with a fine eye for wording and legality. One wrong sentence and either your shareholders or your business lose an important bit of protection.

What Should a Stock Purchase Agreement Contain?

Stock purchase agreements are a bit more cut and dry than shareholder agreements. They are typically one-and-done transactions that last over a temporary period of time. The stock purchase agreement can be used when a shareholder wants to sell their shares back to the business, to another shareholder, a new shareholder or wants to maintain their ownership percentage just before a new shareholder buys in.

In all of these situations, the stock purchase agreement they make between them should contain:

  • Company name
  • Stock purchaser’s name
  • The percentage value of the business shares
  • The exact number of shares being sold
  • When and where the transaction is to take/taking/took place
  • Note of any warranties made/acquired by the purchaser or seller
  • Potential employee bonuses and benefits.
  • An indemnification agreement to account for unforeseen costs

How Would a Shareholder Agreement Affect a Stock Purchase Agreement?

A shareholder agreement can include restrictions or rules on how stocks are supposed to be sold and purchased. An example of this would be a restriction in the shareholder agreement against selling business shares to a competitor or an entity outside of the U.S. The business may have a patriotic view on business or wants to avoid shareholders putting control of the company at risk. This means that a shareholder agreement can stop stock purchase agreements from happening.

The reverse can also be true if the shareholder agreement lacked set and easy-to-understand rules about what can and can’t be done with the shares. In this situation, shareholders can sell their shares to a direct competitor who can assume control and hostilely merge the business, close it, or force it out of its competing industry.

Either way, an experienced entrepreneurial law attorney is necessary to make sure the shareholder agreements have everything they need, and that stock purchase agreements are legal and able to go through.

Contact the Entrepreneurial Law Attorneys at Tressler & Associates

If your business’s shareholders agree to sign a shareholder agreement that lacks any real rules, your business could be vulnerable to outside influence. At the same time, if it is too strict, you will lose your shareholders and the funding that allows your business to operate.

Contact Tressler & Associates so our Tennesseee entrepreneurial law attorneys can write, proofread, and finalize proper agreements that take into account everything you and your business needs.

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