Leoganda Financial & Insurance Services

FAQ :: QUESTION 3

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We are business owners. Why do we need to have a shareholders' agreement?	Shareholders of a company have basic rights, obligations, and duties under the articles of a company. However, many important rights, obligations, and duties are not spelled out. In particular, exit strategies are not built into articles to deal with retirement, disability or death of a shareholder, or even bankruptcy and marriage break-down of a shareholder. In addition, when a shareholder leaves, it may be important to protect the value of the business by having restrictive covenants and confidentiality clauses that are automatic. When a shareholder leaves, the remaining shareholders will want to ensure that shares must be offered for sale to them before sale to third parties. When there are equal 50/50 shareholders, it may be important to have a shotgun clause that creates an exit strategy in the event the shareholders no longer work well together. In business contracts, we strive for certainty. That is also the purpose of a shareholders agreement – to have certainty in the relationship between the shareholders in a company.