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What Is a Shareholder Agreement?

A shareholder agreement can be used to avoid controversies in the future.
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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 17 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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A shareholder agreement is a type of agreement that is reached between the shareholders of a corporation. A shareholder agreement can be used for a variety of different things, including protecting minority shareholders, promoting confidentiality, and saving money. This type of agreement can also be used to avoid controversies in the future.

In some cases, the shareholders of a company wish to bond together to form some type of agreement. Instead of going through the company, these shareholders go directly to each other. By doing this, the shareholders can create a shareholder agreement without having to worry about the bureaucracy that comes with dealing with a corporation.

One of the primary reasons for using a shareholder agreement is to protect minority shareholders. In many cases, minority shareholders do not feel as if they have the same rights as majority shareholders. By engaging in shareholder agreements, minority shareholders can bond together to form a more powerful voice. By doing this, minority shareholders will be able to negotiate with larger shareholders and the company on certain important issues.

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Another good reason for using a shareholder agreement is to promote confidentiality. When dealing with a corporation, everything has to be made public. All of the financial statements of the business and any business matters have to be made available to the general public. In some cases, shareholders do not want to make the deals that are being made a part of public knowledge. In order to avoid public scrutiny, shareholders can utilize a shareholder agreement and keep everything confidential.

Using a shareholder agreement can also be a good way to save money. Corporate contracts are often expensive to procure because of the legal fees involved. If the shareholders do not want to waste a lot of money on coming up with an agreement, they can simply make it amongst themselves and avoid the hassles that come with corporate contracts. This could potentially save them a large amount of money on fees and other expenses.

Many shareholders also wish to use this type of agreement as a way to avoid potential controversies in the future. Some shareholder agreements are used to determine whether disputes will be handled by arbitration or through the court of law. By making provisions for handling these types of disputes in advance, shareholders can avoid drawn out legal battles in the future and potentially save on legal costs.

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