New York Corporations are subject to New York Business Corporations Law. Without a shareholders’ agreement, shareholders are bound by the default rules as set forth in the Business Corporation Law.
A shareholders’ agreement states the rights and obligations of the shareholders to each other and the corporation.
Often, many business owners believe that a Buy-Sell agreement is the same as a shareholders’ agreement. A Buy-Sell agreement only addresses the transfer of shares of stock, but a shareholders’ agreement not only addresses transfer of shares, but also other important issues.
A shareholders’ agreement may address the transfer of shares, voting, limiting the powers of the board of directors, and dissolution of the corporation.
A shareholders’ agreement can addresses the following issues related to the transfer of shares:
(1) that a shareholder cannot transfer or encumber its shares;
(2) that a shareholder must give formal notice to the corporation and to the other shareholders of his/her intention to sell shares;
(3) that the corporation and/or the remaining shareholders be given either a right of first refusal or an option to purchase the shares;
(4) the per share purchase price or the method for determining such price; and
(5) the manner by which an outgoing shareholder’s shares are to be purchased, including the use of insurance proceeds to purchase a deceased shareholder’s shares.
A shareholder’s agreement can also provide protections to minority shareholders.
A shareholders’ agreement can provide provisions relating to the management of the corporation, including the division of duties among the shareholders and company’s officers, restrictions on a shareholder’s ability to compete with the corporation, procedures in the event of a shareholder dispute, and initial and future capital contributions.
Please contact the Law Offices of Robert G. Bruechert to explore how we can help your business succeed.