There are three distinct ownership interests with a closely held company. There is an economic expectation, a right to manage the company and right to hold the ownership position as an asset.
The shareholder agreement is a document identified in the by-laws or sometimes a part of the by-laws of a corporation. Shareholder agreements state the terms of the relationship between the shareholders and their respective rights and responsibilities.
Shareholder agreements are complicated and are customized to the respective situation that exists between shareholders. This section of the site identifies the respective issues and possible resolutions to address the problem.
‘The job isn’t done until the paperwork is complete’, a popular axiom used especially in business. It identifies with the requirement that every corporate entity maintain its legal status and understanding between all investors and the management team. These understandings are the essence of the “formation” of the corporate entity. Failure to do the paperwork can create legal snafus such as the loss of corporate protection for both officers and owners of the company
The shareholder agreement lays out the rules of the relationship between the shareholders of a company. Most often the agreement is poorly written because the legal team fails to understand the business aspect of each of the respective sections. One of these sections is referred to as the Article of Capitalization or commonly called the Capitalization Clause.