Naperville Business Lawyer Talks About the Importance of Shareholder and Operating Agreements

shareholder, Naperville business law attorneysWhen you start any type of business, there are many details that you must address. These include obvious considerations such as where to open your business, what products or services you will offer, and how many employees you will need to serve your customers. If you are going into business with one or more other individuals, however, you will have even more concerns to cover. Unfortunately, however, these additional concerns are too often overlooked and not given the attention they deserve.

As a business law attorney, I have seen far too many situations in which shareholders, co-owners, and business partners do not develop detailed agreements that outline their rights and responsibilities. In other situations, such agreements were created at the company’s inception but not updated as the business grew. With this in mind, I work hard to help business owners create shareholder agreements, operating agreements, and other similar agreements, which reduce the chance of unpleasant surprises in the future.

The Differences Between Shareholder Agreements and Operating Agreements

Shareholder agreements and operating agreements both can be used to create guidelines for running a business when there are multiple owners involved. There a several differences between the two, but the main difference is when each is typically used. When a business is structured as a corporation, those with ownership interests are referred to as “shareholders,” and a shareholder agreement covers the rights and responsibilities of each individual. If the business is structured as a limited liability company (LLC), those who have ownership interests are called “members,” and their rights and responsibilities are usually addressed in an operating agreement.

There is no law requiring either document to be created when the business is established, but having such an agreement is highly advisable. You and your fellow owners may believe wholeheartedly that you are all on the same page when it comes to running the business, as well as the future of the company and each person’s role in the company. Over time, however, opinions change, as do personal and financial circumstances. You will absolutely want to have a shareholder agreement or operating agreement in place before any disagreements arise.

Covering the Basics

Your shareholder agreement or operating agreement can cover a wide variety of issues related to the ownership and operations of the company. These issues include but are not limited to:

  • How to raise capital without diluting shareholders’ or members’ interests;
  • Any restrictions regarding changing the company’s focus;
  • How disagreements between shareholders or members will be resolved;
  • Preventing the personal circumstances of a shareholder or member from affecting the others or the company;
  • How buyouts of a shareholder’s or member’s interests are to be structured and priced; and
  • How ownership interests will be handled if a shareholder or member dies, is incapacitated, or becomes a detriment to the company.

As with any other aspect of a business, your shareholder agreement or operating agreement should be reviewed regularly to ensure that it is still applicable to the company’s current situation. Failure to do so could lead to serious disputes or even litigation down the road.

Speak With a DuPage County Business Agreements Attorney

If you have additional questions about shareholder agreements, operating agreements, or any other business agreements, contact an experienced Naperville business law attorney. Call 630-756-1160 for a confidential consultation at The Gierach Law Firm today and get the answers you need.

 

Sources:

Investopedia

Stout