Disputes among a company’s shareholders will inevitably require a close review of the company’s governance documents. The shareholder’s agreement in a corporation plays a central role in most ownership disputes. This agreement may be known as an operating agreement if you have a limited liability company or “LLC.”
In this article, our Colorado business litigation attorneys will cover the basics of shareholder’s agreements. We’ll cover what these agreements can address and whether the signatories are legally bound by them.
Shareholder’s agreements are written documents signed by two or more shareholders of a close corporation or S-corporation. It describes the shareholder’s rights and obligations and explains—sometimes in conjunction with corporate bylaws and/or articles of incorporation—the rights of shareholders, any limits on the powers of officers to take action without shareholder approval, and how the shareholders can influence the company’s operations. Again, operating agreements can perform a similar function for LLCs.
Broadly, the goal of a shareholder’s agreement is to reduce uncertainty within a company that’s owned by multiple people. The agreement addresses issues that frequently cause conflict among shareholders, such as:
A shareholder’s agreement is not the same as the articles of incorporation or bylaws. Articles are necessary to legally establish the company and are filed with the state. Bylaws require the company to follow certain rules, such as holding an annual shareholder’s meeting.
Shareholder’s agreements are contracts and are subject to general rules of contract law. If a court finds that the agreement complies with the law, shareholders who fail to uphold their duties could be considered in breach.
The remedies for breach of contract vary by case. In some situations, the shareholder’s agreement itself may prescribe or limit the available remedies. Among the many possible outcomes are:
The business litigation group at Keating Wagner Polidori Free has decades of experience in shareholder disputes. Our attorneys will fight to protect your rights and your company if you ever have an issue involving a shareholder’s agreement. Call our Denver firm at 303-534-0401 or contact us online to schedule a meeting.
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