As a business owner, it is important to ensure that all key aspects of your company are properly documented. One of the most important documents that you will need to have in place is a shareholders agreement, especially if your business is structured as an S corporation.
An S corporation is a type of business structure that allows the company to avoid double taxation. Instead, the company`s profits and losses are passed through to the shareholders, who then report them on their personal tax returns. This makes S corporations a popular choice for small businesses.
A shareholders agreement is a legally binding document that outlines the rights and responsibilities of shareholders in a company. It can include a variety of provisions, such as how the company will be managed, how profits will be distributed, and what happens in the event of a dispute or if one of the shareholders wants to sell his or her shares.
One key provision that should be included in any S corp shareholders agreement is how the company will make distributions to shareholders. Since S corporations pass through profits and losses to shareholders, it is important to have a clear understanding of how these distributions will be made. For example, the agreement might stipulate that distributions will be made on a quarterly basis, or that they will be made only after certain expenses have been paid.
Another important provision is what happens if a shareholder wants to sell his or her shares. The agreement should outline the process for selling shares and what happens to the proceeds. It might also include provisions about how shares can be transferred or sold to other shareholders.
The shareholders agreement should also address any potential disputes between shareholders. This can include provisions for resolving disputes through mediation or arbitration, or even for buying out one shareholder`s shares if there is irreconcilable disagreement.
In addition to these core provisions, your S corp shareholders agreement can also include other important details about how the company will be run. For example, it might outline the roles and responsibilities of each shareholder in the company, or specify how decisions will be made on important issues like financing, hiring, and expansion.
Overall, an S corp shareholders agreement is an essential document for any small business owner. It is important to work with an experienced attorney to draft a comprehensive agreement that reflects the unique needs and goals of your company and your shareholders. By doing so, you can help ensure the long-term success of your business and avoid potential disputes down the line.