Updating Your Company’s Shareholders Agreement

Shareholders Agreement New Terms

Shareholders AgreementBeware of changes to a shareholders agreement based on a verbal understanding and a handshake.  Verbally agreeing to changes does not make it legally binding.  When did those changes take place and when did it all change back to the original plan?  When new terms are agreed, your first step is to contact a commercial lawyer.

New Terms Verbally Agreed

How did you discuss and agree to the new terms?  Over a few drinks in a bar?  Well, there’s nothing wrong with that.  Great business decisions come from meetings in a bar or in a restaurant over a meal.  But those decisions need to be supervised by a commercial lawyer.  Our recommendation is that you contact a commercial lawyer and discuss those new terms.  A legal expert will assess the legal aspect of the new terms and identify any vulnerabilities or pitfalls and make recommendations.  Failure to take precautions will likely leave you and your partners in a predicament that will affect the relationship and the smooth running of the business.

Shareholders Refute New Terms 

Remember that the original terms of the agreement made by all shareholders were executed in writing.  You must execute changes to written agreements in the same way or they will be invalid.  You might accurately recall the date, location and reasons why but who, when, where and why aren’t enough to defend a case.  If the new terms aren’t incorporated in writing, signed and dated, they will be deemed invalid. 

After Your Initial Consultation

Your commercial lawyer will likely give you some home work, which will be a combination of talking matters over with the other shareholders and thinking about what you want changed and how.  You’ll need to think about what aspects of the agreement will remain and overall what will govern the new document.   So basically, you’ll need to think about the new terms and how they’ll impact the business.  After consulting with the other shareholders, you’ll then go ahead and instruct your commercial lawyer to make changes and forge a new shareholders agreement with new terms. SG

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