DOES YOUR COMPANY NEED A STOCKHOLDER AGREEMENT?

Contact: Aaron Sokoloff, Senior Associate, Procopio
Posted Sep 4, 2019

Let’s say you are the part-owner of a closely held corporation with one other partner. If your partner gets divorced, do you want to be in business with the proverbial “bitter ex-spouse”? If your partner dies, do you want to be in business with their widow/widower, or worse, their ungrateful, ne’er-do-well kids? Or, if your partner decides to retire or move on to another business, do you want them to be able to keep their ownership of the corporation and be a free rider on your future efforts?

Death, divorce and other life/career transitions are things that people tend to avoid talking about. However, they are a reality for many companies, and often unexpectedly so. Having the difficult conversation and putting in place a stockholder agreement in advance can help protect the company, the stockholders, and their families from being blindsided by these events. In a sense, stockholder agreements are for corporations what wills and trusts are for individuals – they put a process in place for when the unthinkable happens, and they don’t matter until they do, at which point they matter a lot.

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