While some businesses may run under the sole operation and possession of one party, other businesses could list several parties under the category of ownership. If you and several other business acquaintances each own stock in a company, you could fall under the category of a shareholder.
Shareholders may carry varying levels of responsibility and liability, depending on the terms set forth in the company’s shareholder agreement. Knowing the various elements covered in this agreement could help provide you with a better understanding of your duties and rights as a shareholder.
The most common elements
A shareholder agreement may cover numerous topics, ranging from terms on how to add new parties to how to handle dispute resolution. Some of the elements that may appear in a shareholder agreement could include the following:
- Party clarifications: As a shareholder agreement may consist of a section that clarifies the position of each party and the nature of the relationship between the parties involved, setting forth clear terms on this aspect may be vital.
- Majority votes: Such agreements could also include terms concerning shareholder voting, including topics that require a vote and what percentage of the vote constitutes as a majority.
- Dispute resolution: As conflict can arise under various scenarios, addressing how to handle disputes could also play an integral role in creating an effective shareholder agreement.
- Shareholder meetings: As a shareholder, you may retain the right to receive updates on quarterly and annual reports, and the agreement could include terms on scheduled dates for meetings to review this information.
- Modifications: This agreement could also include terms concerning how to approach any proposed modifications to the arrangement or even terms for the topic of termination.
Understanding any federal and New York state laws that may govern shareholder agreements and how these might apply to one’s situation could also be integral to protecting your rights and interests.
Knowing one’s rights
A shareholder agreement can be a complex document that could contain a wealth of information on various topics. Examining the elements of this agreement may help you better understand your duties and rights as a shareholder and provide insight on the proper path to take when changes occur or disputes arise. Knowing all your rights and responsibilities could prove integral to helping you make informed choices about your future and providing you with the confidence to carry out your duties as a shareholder.