At the start of any business relationship, the business partners typically do not think about what may happen if, for example, they should have a disagreement as to how the business should be run, or obtain additional required funds if one or more of the shareholders are unable to contribute their share, or what happens if they just cannot get along any longer and are unable to make the decisions necessary to carry on the business. There are other questions related to exit strategies, including what happens if one of them dies, gets divorced, becomes disabled or bankrupt, wants to sell their shares, or simply wishes to retire.
A shareholder agreement provides an opportunity to think about how these issues should be addressed and to set out the principles and procedures for dealing with these and other situations that may arise. Discussing these issues before they arise may enable business partners to set out principles and procedures that would be in the best interests of the ongoing viability of the corporation and its business. Without such principles and procedures in place, the shareholders may find themselves embroiled in a shareholders’ dispute that ruins the business and wastes its potential and its value.