Business Start-Up Shareholder Agreements

start up businessToday’s business landscape presents legal challenges that, if not addressed, lead to complications down the line. No one wants to put in the work to build an empire only to have legal issues unravel all their progress. Working with James Braden, a San Francisco business lawyer, is essential to protect the longevity of a start-up or any business venture.

What Is a Shareholder Agreement?

Sometimes referred to as a stockholders’ agreement, the shareholders’ agreement delineates how a company or start-up optimally operates and carves out shareholders’ rights and duties. Also, the shareholder agreement lays out information on the governance of the enterprise, freedoms, and safeguards of shareholders.

What Should a Shareholder Agreement Cover?

Board Election

Shareholder agreements frequently provide shareholders or a collection of stockholders with the privilege to vote for company directors. In this way, start-up agreements ensure that the organization’s founders get enough representation in the leadership.

Specific Stockholder Permissions

A shareholder agreement also grants specific stockholders rights over some critical corporate changes. Some of these include creating new share classes or streamlining the sale of the company.

Restrictions on Share Transfers

Usually, founders of a start-up know it’s detrimental to a company if their shares end up in the wrong hands. That’s why the shareholder agreement details the circumstances in which shares move to new parties. This limitation of situations in which share transfers ensures the longevity of the start-up is further guaranteed.

Pre-Emptive Rights

Shareholder agreements also regularly bestow investors and other qualified parties with the rights to an equivalent portion of new shares and securities from the company. These rights frequently go by the “pre-emptive rights” nomenclature. They are common in a good percentage of venture-backed or seed-funded entities.

Drag-Along Rights

At times, founders want the right to require the minor stockholders to vend their shares and/or vote in favor of acquisition agreements. Often referred to as “drag-along rights,” they’re also common in many venture-backed operations.

Reverse Vesting Provisions

These prove significant for start-ups that need co-founders to earn shares from merit. This merit comes from accomplishing milestones, continued service, and/or employment in the business entity. When co-founders fail to adhere to this agreement, the entity or stockholders reserve the right to reclaim unearned stock from them, normally at a minuscule cost or none at all.

Creating a Shareholder Agreement With a Business Attorney

Founding and maintaining a successful start-up or company takes pristine coordination of different moving parts. As a founder, one may not have all the expertise needed to set up a company for success. Most entrepreneurs that found companies know the commerce side of things but struggle with the legal end.

Not only does this put them at a disadvantage when they try and go it alone, but they also don’t take advantage of various benefits that come with legal assistance. A business attorney advises on the legal options and obligations of founders and stockholders within the company. By understanding these intricacies, start-up founders set themselves up for long-term success.

Mr. James M. Braden helps founders in the formation and business planning stages. Furthermore, he also helps founders decide which kind of entity is best to form to avoid negative legal action in the future. A few of the other legal assistance he and his team offer include:

  • Stock Option Planning
  • Corporate Securities Issuing
  • Securities and Exchange Commission Compliance
  • Municipal Bonds

Set up your start-up for success by contacting a San Francisco business litigation lawyer for comprehensive legal business representation.