Whether you’re just starting as a new New York business owner or restructuring the way your company does business, one of the most important things to get right from the beginning is a shareholders agreement. It is a fundamental part of protecting your future as a company and avoiding potential legal issues in the future. Hiring a New York corporate and commercial lawyer to draft the Shareholders Agreement is in the best interest of your company.
Why You Need a Shareholders Agreement in New York
Some business owners will tell you that you do not need a shareholders agreement if you are just starting out, but this is unwise. Even if you are just running an online store with a few friends or relatives, an experienced New York corporate and commercial lawyer will tell you the pitfalls involved in not putting a shareholders agreement in place. Without a written, legal agreement between you and the other owners of the company, they can sell their shares at any time to anyone they want. One day, you could be in business with your best friend; the next, you might have to deal with a total stranger who knows nothing about your product or business.
“Right of First Refusal” in New York
An experienced New York corporate and commercial lawyer can make sure that you understand your rights and that you put every period in the correct place on your agreement. They can explain to you about the “right of first refusal,” which essentially says that if an owner wants to sell his or her shares to an outsider, they first have to offer those shares to the remaining shareholders of the corporation. If and only if those remaining shareholders do not wish to buy the shares, can he or she sell those shares to someone outside of the company.
Further provisions can be made to set a predetermined price at which the shares can be bought by the corporation instead of the outsider – usually a lower price – and how the corporation has to pay for these shares. Does payment need to be made all at once, or can the sum be paid in installments? These are just a few of the legal decisions that an experienced New York corporate and commercial attorney can help you with.
Shareholders Agreements in NY Are Complex Legal Matters
Despite what some law blogs would have you believe, this is not a simple paint-by-numbers procedure, and you should not go with a pre-existing template or someone else’s agreement that may be available to you. The Fordham Law Review alone has a 53 page document whose sole purpose is to describe how to draft a shareholders agreement for a New York close corporation. A well-crafted shareholders agreement could have provisions covering the composition of the company’s board of directors and related matters of corporate governance, preemptive rights, share transfers, tag-along and drag-along rights, and mechanisms put into place to resolve deadlocks.
These are all things that are important for you to know before drafting your shareholders agreement, and although the legal principle “freedom of contract” governs many provisions, any number of legal considerations can still affect the enforceability and effectiveness of these provisions and cause “traps” for those who don’t know the law as well as they should. If you have a New York lawyer with extensive experience in Shareholders Agreements on your side, you can protect yourself and your company from these potential pitfalls.
Get the Help of a New York Corporate and Commercial Lawyer
Each shareholders agreement is unique, and an experienced New York corporate and commercial lawyer can help you to avoid these traps and pitfalls for your particular situation before they become problems. If you are in the process of creating your own company, whether it be a Business Corporation, Limited Liability Company (LLC), Partnership, Limited Liability Partnership (LLP), or S-corporation, contact a qualified New York shareholders agreement lawyer today. He or she will work with you to ensure that you and your company are protected and help you to understand each decision you make for the future of your business. Don’t hinder the future growth of your company by not taking the proper steps today.
By Eric Sachs