A Shareholders Agreement, if written correctly, will a) limit each shareholder’s ability to transfer his/her/their/its shares in a corporation, b) provide for certain voting rights or limitations on voting rights, and c) give the corporation and each shareholder the option to purchase the shares of a deceased or withdrawing shareholder. Its purpose is to minimize [...]
Well, without it, you could easily be engaged in litigation down the road. By way of example, without an agreement in place, the shares of a deceased shareholder will vest in that shareholder’s heirs, who will then be able to review the corporation’s books and vote. If that person doesn’t understand what’s best for the [...]
Frequently a Buy-Sell Agreement is the name used for a Shareholders Agreement in a corporation. Sometimes, though, a Buy-Sell Agreement only refers to that part of a Shareholders Agreement that provides for the remaining shareholders to purchase a deceased or withdrawing shareholders’ shares. Though a solid first step, ideally your corporation would be protected by [...]
Should my operating agreement or shareholders agreement with my co-owners provide for unanimous voting for any operational issues?
Unanimous voting rights can bog down the governance of any enterprise, especially where there are several owners. Sometimes it’s necessary when, say, you have only two owners and they both want to be sure to be included in every decision. Typically, though, unless required by law, you’ll want to avoid unanimous voting requirements, opting instead [...]
Voting rights in your entity are an important element of its governance. Sometimes a minority investor, or group of investors, may want the right to vote (or veto) certain business decisions, even though they don’t have the equity to sway a vote. Nevertheless, you may want to give them certain veto rights as part of [...]
Capitalization can mean a couple of things. At first it usually refers to the contributions of money or property that the owners (shareholders or members) have contributed to the business, their “capital contributions”. Later on, or as a result, or in anticipation of such contributions, it may refer to a capitalization chart or table, which will set out each owner and their percentage interest in the entity.
Simply put, those are the owners, and they can be in many shapes and sizes. A shareholder can be an individual who owns shares in GM or Microsoft; it can be you, owning 100% of the issued shares in your own corporation. It can be another corporation or venture capital firm owning shares in your start-up. "Stockholder" and "shareholder" typically means the same thing.
Good question. This concept often gets confused with “authorized shares”. Issued shares are those shares that the corporation has actually “issued”, i.e., transferred to a shareholder. This can be in the form of a certificate, and that can be typical in a small business. In larger businesses, the ownership of issued shares is usually a journal entry in the corporation’s books and records, or with the broker. The number of issues shares cannot exceed the number of authorized shares.
Directors are the individuals who make up the board of directors. Due to the responsibility these individuals have, it’s common for the business to obtain insurance to cover the directors (aka D&O insurance) for the decisions they make, even though the fact of the corporation is supposed to shield – sometimes things don’t go the way you expect . . . pesky lawyers!!
Hopefully something that you have plenty of! A dividend is the cash (or property) that is transferred from the corporation to its shareholders after all expenses are paid, including the corporation’s taxes. Only C Corporations pay “dividends”; S Corporations make “distributions”, since S Corporations themselves do not generally pay taxes. A dividend is not a deductible expense of the corporation.