Shareholder Agreements: The Danger of Underfunding
Running a business with partners is rewarding, but it also brings shared responsibilities, including the need for robust planning if something unexpected happens.
A well-drafted shareholder agreement is designed to protect all parties involved in the business. It should clearly define the following aspects:
- protections for all parties involved
If your agreement lacks sufficient funding, these protections fall apart at the most critical moment.
When a shareholder agreement is not properly funded, several problems can arise, such as what happens when one partner passes away.
Consider two owners who build a thriving business and sign an agreement. Time passes, the business grows, and the agreement is forgotten. Then, unexpectedly, one partner passes away.
Author's summary: Underfunding shareholder agreements poses risks.