What is a Shareholders Rights Agreement?

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If you're starting a company with shareholders, a Shareholders Rights Agreement helps keep your shareholders in check. Or maybe you're a shareholder and want to define your rights. Maybe a company started as a mom and pop operation, but it's growing to include more shareholders. A Shareholders Rights Agreement clearly defines terms between the company and its shareholders.

Use the Shareholders Rights Agreement document if:

You are forming a business with more than one investor and you want to clarify how the business will run
You want to create rules for how your business will deal with any disputes between owners
You are a shareholder and want to protect your interest in the company

It's important to detail issues with a Shareholders Rights Agreement. How many shares are held by each shareholder? How are dividends distributed? What happens if the company closes - or a shareholder wants out? Don't get caught up in the excitement of more adding more investors. A growing company can be a great thing. But that also opens up room for growing pangs. After all, the more hands in the pot, the messier it can get. You want to make sure the rules, terms, and agreements are outlined in advance. This document can also help settle any future disagreements between shareholders. Help keep the distribution of power fair with a Shareholders Rights Agreement.

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