Shareholder Agreements

Shareholder Agreements

The relationship among shareholders and with the corporation they own is governed by a shareholder agreement. The shareholder agreement typically addresses the rights and obligations the shareholders owe to each other and to the company. Shareholder agreements often define confidentiality provisions, ancillary agreements the shareholder may make with the corporation or third parties, restrictions on competition, transfer restrictions, the pricing of shares, rights of first refusal to purchase additional shares, and access to books and records. The method by which the shareholders elect or appoint members of the board of directors is also usually provided for. So too is the method by which shareholders may vote their interests. As are the methods by which the corporation may be dissolved or sold. The document also typically contains the number of shares, a description of the various classes of shares, and a capitalization table and shareholder register.

Shareholder agreements are foundational to corporate formation and along with bylaws govern the relationships between owners, directors, and executives within a corporate enterprise. They provide the method by which majority shareholders may exercise control over the business and provide important protections for minority shareholders seeking to maintain or enforce rights arising from their investment. Especially in private corporations or close corporations, which are governed respectively by NRS Chapters 78 and 78A, a shareholder agreement is key to protecting investor interests.

The benefit of investing in corporations through the purchase of shares is that shareholders generally enjoy limited liability for any harm caused because of corporate activity. Absent unusual circumstances, shareholders are not required to contribute additional capital to cover harm the corporation causes to third parties; the liability of the corporation is limited to corporate assets. One potential drawback of the corporate form of business enterprise is the absence of pass-through taxation. The corporation pays taxes at the corporate level, and the shareholder pays taxes when they realize the profits of their investment. Corporations do not enjoy the pass-through taxation benefits of partnerships, sole proprietorships, and limited liability companies, but there are other tax benefits to the corporate form of business enterprise that may compensate for the absence of pass-through taxation.

We prepare shareholder agreements on behalf of companies that allow investors to have a clear understanding of the rules of their investment. Contact us today to schedule an appointment to discuss the formation of your corporation including the drafting of your shareholder agreement.