Shareholder Agreement Basics

Privately held corporations with multiple shareholders often enter into shareholder-level agreements that define the relationship between the shareholders and the company.  This entry discusses issues that clients commonly deal with through shareholder agreements.

Shareholder agreements often restrict a shareholder from selling their stock to a third party buyer.  Sometimes, the shareholders agree to allow sales of stock, but only after the company and the other shareholders receive a first and second right of refusal or a right of first offer.  Transfers to family members or trusts for family members may be allowed for estate planning purposes.  If a corporation is an S corporation, transfers to ineligible S corporation shareholders are normally prohibited altogether.