Small-business owners often want to control the future ownership of their company. When your business is set up as a corporation, you can use a shareholders agreement to specify the terms and procedures for the company or another shareholder to buy out a shareholder who wants out of the business. The agreement has the force of a legally binding contract, and the corporation must follow the procedures outlined in the document or the bylaws to amend it.
A corporation's board of directors manages the overall business of the company on behalf of the shareholders. The board operates in accordance with the corporation's bylaws, which are one of the company's primary organizational documents. The bylaws specify how major decisions should be made, including voting procedures and the process the board must go through to change major documents or policies.
Advertisement Article continues below this adCorporations use shareholders agreements to bind all shareholders to a particular course of action. This type of agreement can address almost any issue, but it is typically used by small or closely held corporations to set the procedures for buying out a shareholder who wants to leave. For example, a small corporation can have a shareholders agreement in place that requires a withdrawing shareholder to sell his shares back to the corporation at a specific price or a price that will be determined according to a specific valuation process. Putting this agreement in place in advance prevents ownership strife when a shareholder wants out.
A shareholders agreement can only be adopted according to the provisions of the corporation's bylaws. While every corporation's bylaws are unique, the implementation of a shareholders agreement typically requires a majority vote of the board of directors or a majority vote of all the shareholders holding voting-class stock.
Advertisement Article continues below this adThe procedure for amending a shareholders agreement that covers ownership and stock transfer issues can be detailed in the document itself or the bylaws. In either case, the subject must be proposed at a meeting of the board of directors. A majority of the directors must agree that an amendment is appropriate, and the board must record its decision to amend as a corporate resolution. If the bylaws require the decision to be accepted by a majority of the shareholders, the directors would call a shareholders meeting, at which they would vote on the amendment. The board would prepare the amended and restated shareholders agreement, vote it down, or vote to adopt it, and preserve it in the corporate records.