Shareholder Agreement Divorce Provision

The importance of a shareholder pact cannot be underestimated; Take the following example: A shareholder contract is a contract between all the shareholders of a company that contains certain conditions of operation (and frequent creation) of that company. It regulates the behaviour of shareholders among themselves and provides a mechanism for resolving disputes between shareholders. After the divorce, a shareholder`s shares are part of the family`s net property, which must be compensated by the spouse. This could lead the shareholder`s ex-spouse to be entitled to the company`s shares during the divorce. If that were the case, you would now deal with the ex-spouse and not with the partner with whom you entered the business. It could be even more sticky if the ex-spouse decides, subject to his control of the voting rights, to sell the transaction. Your livelihood is at stake. A shareholder pact would mitigate this situation by limiting the transfer of shares to an ex-spouse after the divorce. Carrying unnecessarily large amounts of money into your company`s balance sheet allows a judge to easily order payment to your ex-spouse in a divorce plan. While the court is reluctant to order a spouse to sell his business following a divorce, he can order that the entrepreneur make lump sum payments to his ex to buy their shares in the company. However, if there are other shareholders, judges may be more inclined to avoid a company being sold as much as possible, as it would be unfair to influence their shares in the company if they are not involved in the divorce. If a shareholder dispute is allowed to continue, business may be paralyzed and the value of the business may be compromised.

No legal document can prevent shareholder failure, but a shareholder contract can provide a framework for managing the situation. Yes, a shareholders` pact could mitigate this effect by dividing the distribution of profits according to what is fair between a participating active shareholder and a passive shareholder if a shareholder is unable to contribute to the transaction for a long period of time.