Why It Is A Good Idea To Establish A Shareholder Agreement Before Starting A Business


North Shore commercial lawyerIf you are starting a business with others as partners and you wish to incorporate your business, it is vital that you establish a shareholder agreement prior to opening your doors for business. The time to get everything ironed out and agreed upon is the time before any actual business is transacted. This simply sets the stage for agreement among the shareholders of the business, as each one will sign off on it, signifying agreement to the terms.

Shareholder agreements are necessary in order to protect the shareholders because if anything goes wrong and a disagreement ensues, the agreement is the document that everyone can stand on, and one which will hold up in a court of law, if drawn up properly. Having a well thought out agreement in place will help to solve any disagreements as far ownership percentages, as well as rights and privileges of the shareholders.

The terms of the shareholder agreement will outline who the owners of a company are, and the nature of their roles in the company. Roles and duties can change as time goes forward, but if they do and when they do this can be noted as amendments to the agreement itself. Since the agreement and the duties will be agreed to in writing in front of witnesses and notarised, there will be no disagreement outside of the shareholder agreement that will be recognised in court. Disagreements can escalate very rapidly to being out of control and unless there is something in writing to verify the original intent, a company can be destroyed by infighting.

Meeting between Start-up directorsIf there are disagreements that occur later in the company’s lifespan, then there should be a mechanism to have one shareholder be able to buy or sell shares to help in mitigating the dispute. Also as far as duties, there can only be concessions made if all the shareholders agree. The idea is that since all the shareholders started the company in a cooperative manner, there should be mechanisms in place to keep it that way.

Also in the agreement should be a plan of succession in case one or more of the shareholders should die, retire or becomes incapacitated. If a plan is already in place when and if these events occur, then there is no question as to how it will proceed to realign the ownership and duties of the shareholders. A plan for buying and selling shares should be in place to transfer ownership to the remaining shareholders if such an even should occur.

If a shareholder dies, then his shares would normally go to his heirs when his estate is probated, and this could spell disaster for the company as you would have an inexperienced relative involved with the company. If a buy and sell arrangement is in place, then the estate of the deceased would be obligated by the terms of the agreement to sell the shares back to the company in return for a prior agreed to amount. The money to pay for the purchase back can be funded with a life insurance policy paid to the corporation, and then redeemed to the surviving relative, usually a spouse, for the exchange of the shares of stock.

Never rely upon oral agreements, as they are as fickle as the wind, as it is very difficult to get an oral agreement to stand up in court, unless there are iron clad witnesses, and then it can be quite a challenge. Always have written agreements that are witnessed and notarised by a licensed notary. In this way you will always have an iron clad shareholder agreement that will be the basis of how the corporation will be operational moving forward.

The key to a successful shareholder agreement is the legal clarity of the document. You do not want any areas open for “interpretation”. It is in the everyone’s best interests to have an explicit explanation which is legally clear and not ambiguous. To do this, it is best to contact an experienced North Shore commercial lawyer who can draw up the shareholder agreements. North Shore companies will derive great benefit over the long haul by undertaking this simple task. One of the biggest law firms in the area is McVeagh Fleming and Co who have a team of business, contract and corporate lawyers who can help.

Of course shareholder agreements can be changed and altered as the case may be, but only with the agreement of all parties in order to keep the original integrity in place as first intended.


LawyerAt most times in people’s lives they need to consult a lawyer. This can be for a whole range of different necessities. Some are for a positive need like buying your first home while others are not so enjoyable. Our aim is to make your experience with the legal profession as easy as possible with the minimum of distress and time expended.

One common complaint that people have about lawyers is that the client does not fully understand what is being talked about. For the nitty-gritty of each case, the language between lawyers needs to be very specific. The laws are so complex that this unknown language is necessary for the clients to get to the outcome they are looking for. However, this does not make it easy for the client to follow.

On this site we aim to make some more common issues and situations easier to understand. It is important to realise though that anything expressed on this site does not constitute actual legal advice. These are articles intended to make readers better informed so they can get a better understanding of their situation. Whenever you have legal issues, you must consult a lawyer and not rely on anything you read online. This is because each person’s situation is different and a lawyer can only advise when they fully understand the specifics of any single circumstance.

Some common legal situations

Not surprisingly there are some situations which arise more often than others.

For the majority of people their dealings with the law will probably be a real estate solicitor to help them with the sale or purchase, the conveyancing, of their home.

Some people may take this further and invest in rental properties which requires the same property transactions but may also need additional services such as setting up a family trust or a company that will own the rental houses. If you do establish a trust, then you will also need proper administration of that trust so that it operates correctly within the tax laws of New Zealand. People have been fined for not managing their trust correctly.

Following on from setting up a trust is an aspect that many people overlook. It relates to wills and how to manage your estate. Too many people ignore this but doing so can leave your family without a clear intention of how you want your estate to be divided. This can lead to family disputes and your intentions may not be carried out as you wanted.

Commercial property investment is another common legal issue.

Within the commercial arena, there are numerous ways commercial lawyers can help. If you are selling or buying a business you will need legal help with the sale transaction itself. In addition you may have commercial leases to amend for premises or plant. This can also lead onto employment law topics if you have employees in your business.

One area that is by definition a difficult one is that of disputes. These can vary from neighbours disputing fences and boundaries to bigger issues arising from breaches of contract. Unless there is a clear-cut breach of the law by one party, often, the lawyers can negotiate an outcome that is a suitable compromise for both parties.

Talk to your lawyer sooner

In many situations, the sooner you make contact with your lawyer the better it will be. Possibly that can advise not to take matters any further or they may be able to send a letter to the other party to bring about a swift result.

Other times, they will help you work though the case to reduce the time spent on the issue or to lessen any stress you might endure.

Whichever, until you actually contact a North Shore lawyer, if that is where you are based, the situation will not be resolved.