Why Do You Need A Shareholders’ Agreement In British Columbia?
While setting up a business is difficult, so is running it. A shareholders’ agreement clearly establishes the relationship between all co-owners of your company. It is a mutual contract between the shareholders about business operations, profit-sharing, share transfers, and more.
If you own a company based in British Columbia, preparing a shareholders’ agreement with a corporate lawyer’s help is advisable. Hire an experienced local lawyer who understands the city’s zoning regulations and helps you prepare a precise agreement.
While a shareholders’ agreement is not mandatory, it influences how smoothly your company functions. It also provides you and the co-owners of your business clarity regarding various matters. Having an elaborate shareholders’ agreement lays down the framework for conducting business operations, sharing profits, and other important aspects of managing an organization.
Let us dive a little deeper and understand why an entrepreneur should prepare a shareholders’ agreement in British Columbia:
Safeguarding Shareholder Rights
A shareholders’ agreement protects the rights of every shareholder of your company. It has a detailed account of the percentage of shares every co-owner has, their voting rights, and the authority they have over important decisions. The agreement is proof of all the rights a shareholder is entitled to after buying their stake in your company.
A shareholders’ agreement in BC may also have clauses regarding how votes are counted and the people with key decision-making authority. Such details are transparent and every shareholder can refer to them during their stint with your company.
Dispute Resolution
A business with multiple owners is prone to disputes, confusion, and misunderstanding. Matters can get unnecessarily complicated without a shareholders’ agreement. This contract plays an important role in avoiding disputes and resolving them if they arise.
Disputes revolving around business management can lead to lengthy and expensive trials. An unambiguous shareholders’ agreement gives everyone a roadmap to follow and refer to during emergencies.
If you encounter a dispute after preparing this agreement, you can seek your corporate lawyer’s help to resolve it.
Provisions For Share Transfers
A shareholders’ agreement clearly defines the rules for share transfers. Without the agreement, a shareholder can sell their shares to anyone, bringing in co-owners other shareholders may not prefer. Preparing a shareholders’ agreement in BC lets you control the transfer of shares.
Many businesses follow the ROFR (right of first refusal) rule for share transfers. This rule gives existing shareholders a chance to buy company shares before they are sold to outsiders. Such regulations ensure that the management control stays within the organization.
Protecting Minority Shareholders
Minority shareholders may feel insecure without a well-crafted shareholders’ agreement. You can add provisions to this contract that safeguard minority shareholders’ interests and keep them immune from the power of majority shareholders.
The agreement can keep a check on the decisions majority shareholders make that may not be in the best interest of minority shareholders. Many businesses also give minority shareholders veto powers over important matters, preventing their exploitation. Entrepreneurs who care for these shareholders also ensure that they are treated equally in the event of a business sale.
Ensuring Business Stability
Without a shareholders’ agreement, events like a shareholder’s exit, demise, or incapacity can bring business operations to a halt. These documents often have clauses about how to continue operations after such unexpected events occur.
As a business owner in BC, you should include clear succession plans in your shareholders’ agreement to ensure your company’s stability. A set of clearly defined guidelines can prevent business paralysis and put other shareholders under threat.
A shareholders’ agreement also defines the procedures for bringing in new co-owners and removing non-performing members. An incorporated business lives on forever and your shareholders’ agreement will ensure the same.
Funding And Capital Contribution Clarity
A shareholders’ agreement mentions how the company will raise money for development and expansion. It clarifies the percentage of funding to be received from shareholders and external investors. The agreement also enlists regulations controlling capital contributions in a way that a few shareholders do not bear excessive financial burden.
Your shareholders’ agreement will also discuss profit and dividend distribution. This keeps everyone informed about their incentives and gains from their contributions.
IP Protection
If your business nurtures an intellectual property (IP), a shareholders’ agreement will help you protect it. You can specify that the business and not its shareholders own the IP to avoid confusion or disputes.
Along with protecting IPs, shareholders’ agreements also ensure a fair level of confidentiality. The clauses are completely transparent to all shareholders but protected from outsiders. Businesses often include provisions that prevent any shareholder from leaking business secrets to anyone not associated with the companies.
Confidentiality clauses also ensure that shareholders do not share sensitive or exclusive information about your business with outsiders after leaving the organization.
Avoiding Legal Battles
Creating a detailed and well-planned shareholders’ agreement helps you avoid expensive legal battles. It gives you the procedures to follow in the event of disputes without straightaway going to court. Corporate legal battles are often excruciatingly long and can drain a business of its resources. Thinking this through and adding well-defined regulations to your shareholders’ agreement can save you time, effort, and money.
Having said that, if you are going through any management disputes, profit distribution complications, ownership changes, or other hurdles that require legal intervention, you can consult a corporate lawyer in BC.
Prepare A Comprehensive Shareholders’ Agreement In BC With Cube Law
Cube Law helps businesses across British Columbia prepare detailed and personalized shareholders’ agreements. Our corporate lawyers will assist you in adding all relevant clauses and leaving no scope for confusion. We will also help you resolve disputes and represent you in court if needed. Our lawyers know provincial and federal laws well enough to explain all the jargon you may not understand. Cube Law helps you prepare the perfect roadmap establishing the relationship between all shareholders and their commitment to your business.