Understanding Shareholder Agreements

condesign. (2014). Pixabay. Playground, rope, bridge, balance, game device. Retrieved from http://pixabay.com/en/playground-rope-bridge-balance-493042/. License: CCO Public Domain/ FAQ

condesign. (2014). Pixabay. Playground, rope, bridge, balance, game device. Retrieved from http://pixabay.com/en/playground-rope-bridge-balance-493042/. License: CCO Public Domain/ FAQ

A Shareholder Agreement is a key legal document to protect the owners in the case of unexpected change in the owners. Typical events include retirement, death, disability, bankruptcy of an owner, or divorce. This document controls future ownership of the business if one of these events occurs. The agreement dictates who buys the shares and at what price. Typically, life insurance is used to fund the death of an owner. Often the insurance policy is owned and paid for by the business. Valuation is a challenging area as the agreement needs to be fair to all owners and be as close to market value as possible (Holleman, 2010). For more information, read Vernon W. Holleman’s Understanding Buy-Sell Agreements for Small-Business Owners. Sun Life has also prepared an extensive case study on two partners which illustrates the various aspects of a Shareholder Agreement (Sun Life Sample). Be certain to recognize the importance for such an agreement and consult with legal and insurance advisors when you are defining goals and priorities.

Activity: Understanding Shareholder Agreements

Consider the business you are considering purchasing. Will you be the sole owner? Will you need a need a Shareholder Agreement?

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