Shareholder Agreements Attorney Serving Auburn, Washington

A well-drafted shareholder agreement is fundamental to a healthy business partnership. It sets clear expectations and provides a roadmap for handling future events, protecting your investment and relationships from potential disputes down the line. Seeking professional legal help allows you to build a comprehensive agreement that safeguards your interests from the very beginning. 

At Boswell Law Offices, PLLC, we guide business owners through the process of creating strong foundational documents. Having practiced law for more than 20 years, our attorney has developed a client-focused approach that shapes our strategies around your specific needs and goals. From our office in Auburn, Washington, we serve clients in Tacoma, Kent, and throughout Southern King County and Pierce County. 

What Is a Shareholder Agreement?

A shareholder agreement is a private contract among the shareholders of a corporation. Think of it as the rulebook for how you and your fellow owners will run the company, make decisions, and manage your ownership stakes. While not always legally required to form a corporation, putting one in place is a smart move for any business with more than one owner. 

This document works alongside your company's articles of incorporation and bylaws but deals with more personal, shareholder-level matters. It helps clarify the rights and responsibilities of each owner, reducing the chance of misunderstandings that can lead to costly conflicts. By planning ahead, you give your business a stable foundation for growth. 

Why Your Business Needs a Shareholder Agreement

Every business partnership starts with optimism and shared goals. However, circumstances change over time. People’s personal lives, financial situations, and professional ambitions can shift. A shareholder agreement prepares your business for these changes, providing a clear, agreed-upon process for handling them. 

Here are some key reasons why your business should have one: 

• Defines roles and responsibilities: The agreement can specify the roles of shareholders, especially those actively involved in day-to-day operations. This prevents confusion over who is responsible for what. 

• Establishes decision-making processes: It specifies how important company decisions will be made. This can include what requires a simple majority vote versus a unanimous agreement, giving you a clear path forward on critical choices. 

• Controls share transfers: A core function of the agreement is to control who can become a shareholder. It typically includes "buy-sell" provisions that dictate what happens if a shareholder wishes to sell their shares, retires, becomes disabled, or passes away. This prevents shares from being sold to unknown third parties or ending up in the hands of a deceased shareholder's relatives who may have no interest in the business. 

• Provides a dispute resolution method: Should disagreements arise, the agreement can require shareholders to go through mediation or arbitration before heading to court. This can save everyone time, money, and the stress of litigation. 

• Protects minority shareholders: The agreement can include protections for shareholders who hold a smaller percentage of the company, giving them a voice in major decisions and preventing them from being unfairly pushed out. 

Without an agreement, you are left to rely on default state laws, which may not align with your intentions or the best interests of your company.

Key Provisions to Include

A shareholder agreement should be tailored to the unique circumstances of your business and its owners. However, most effective agreements include several common provisions. When we work with you, we’ll discuss which elements are most important for your situation. 

Common provisions include: 

• Company management: Details on the composition of the board of directors and the appointment of officers. 

• Share valuation: A formula or process for determining the value of the company’s shares. This is vital for buy-sell events, so everyone agrees on a fair price ahead of time. 

• Buy-sell triggers: A list of events that would trigger a buyout, such as death, disability, retirement, bankruptcy, or divorce. 

• Funding for buyouts: A plan for how the company or remaining shareholders will fund the purchase of a departing owner's shares. This often involves life or disability insurance policies. 

• Restrictions on share transfers: Rules that require a shareholder to offer their shares to the company or other shareholders before selling to an outside party (Right of First Refusal). 

• "Tag-Along" and "Drag-Along" rights: "Tag-along" rights allow minority shareholders to join in a sale initiated by a majority shareholder. "Drag-along" rights permit a majority shareholder to force minority shareholders to sell their shares in a company-wide sale. 

Washington Law and Shareholder Agreements

In Washington, shareholder agreements are recognized and governed by the Washington Business Corporation Act (WBCA). The law gives shareholders significant freedom to structure their relationships and the governance of their corporation through a written agreement. 

Washington statutes explicitly permit shareholder agreements to cover a wide range of topics, such as: 

• The management of the business and its affairs. 

• The distribution of profits. 

• The election and removal of directors. 

• The transfer or use of property between the corporation and any shareholder. 

One important aspect of Washington law is that a shareholder agreement can even modify the traditional corporate structure, allowing for arrangements that might otherwise be found in a partnership or LLC. For example, an agreement can eliminate the board of directors or restrict its powers, giving management authority directly to the shareholders.  

For these types of modifications to be valid, the agreement must be signed by all persons who are shareholders at the time of the agreement and made known to the corporation. 

It's worth noting that under the WBCA, the existence of a shareholder agreement must be noted on the stock certificates. This alerts any potential purchasers of the shares that their rights may be subject to the terms of the agreement.