A clear agreement provides predictability for owners, protects economic and control interests, and sets expectations for future events like sales, disability, or death. By defining processes for valuation, transfers, and dispute resolution, these agreements minimize interruption to business operations and support long-term stability and continuity for the company and its stakeholders.
Comprehensive agreements reduce the risk of disputes by defining clear procedures for common conflicts, transfer events, and governance decisions. Predictability in enforcement and valuation helps owners plan for contingencies and make business decisions with confidence, minimizing interruptions and protecting stakeholder interests.
Hatcher Legal combines practical business knowledge with legal drafting and negotiation to create agreements that align with clients’ commercial goals. Our approach focuses on clear, enforceable provisions that address real-world contingencies such as valuation disputes, transfers, and governance challenges in closely held companies.
After execution, we recommend periodic reviews to ensure the agreement still matches the business’s structure and objectives. Updates may be necessary following capital raises, ownership changes, or strategic shifts; scheduled reviews reduce surprises and maintain alignment with evolving business needs.
A shareholder agreement is a contract among company owners that outlines governance, ownership transfers, voting procedures, and financial rights. It supplements corporate documents by providing private, tailored rules that address potential events like transfers, buyouts, and dispute resolution, giving owners predictable mechanisms for handling change. Having a written agreement reduces the likelihood of costly disputes, clarifies expectations among owners, and protects business operations during transitions. It also helps preserve value by establishing valuation methods and transfer protocols, ensuring smoother continuity when ownership changes occur.
A partnership agreement governs relationships among partners in a partnership structure and addresses profit sharing, management duties, capital contributions, and partner exits. A shareholder agreement serves a similar role for corporate shareholders, focusing on share transfers, voting, and corporate governance while integrating with corporate bylaws and statutes. Both documents aim to prevent disputes and provide orderly exit and valuation procedures, but the specific mechanics differ to reflect the entity type and applicable laws. Choosing the right form depends on whether the business is a corporation, limited liability company, or partnership.
A buy-sell provision sets the conditions under which an ownership interest may be sold or transferred, identifying triggering events such as death, disability, voluntary sale, or creditor actions. It specifies who may acquire the interest, timelines, and funding mechanisms to facilitate an orderly transition. Buy-sell terms typically include valuation methods, payment terms, and restrictions to prevent involuntary ownership changes. Well-constructed buy-sell provisions help avoid disputes by making the transfer process predictable and manageable for both the departing owner and remaining owners.
Valuation can be determined by formula, independent appraisal, or a combination of agreed methods such as multiples of revenue or earnings, discounted cash flow, or book value adjustments. The agreement should specify the chosen approach and any appraisal procedures to avoid disagreement when a buyout occurs. Including clear valuation mechanics and fallback procedures reduces disputes and speeds the buyout process. Parties often include timelines for selecting appraisers and rules for resolving conflicting appraisals to ensure a prompt, enforceable outcome.
Yes, an existing agreement can be amended if the parties agree and follow the amendment procedures set out in the document, such as required votes or consents. Regular review is advisable to confirm that the agreement remains aligned with business realities after events like new investments, ownership changes, or strategic shifts. Periodic reviews—often annually or at major milestones—help update governance, valuation provisions, and buy-sell mechanics. Updating the agreement proactively prevents reliance on outdated terms that may no longer suit owners’ objectives.
Agreements commonly include provisions that address death or disability by triggering a buyout, transfer to heirs subject to restrictions, or an insurance-funded purchase by the company or remaining owners. These terms ensure predictable transitions and protect both the business and the departing owner’s beneficiaries. Specifying valuation, timing, and payment terms in advance prevents disputes and ensures the company can continue operating smoothly. Funding mechanisms such as life or disability insurance can provide liquidity to complete buyouts without straining company cash flow.
Virginia law does not automatically require shareholder or partnership agreements, but companies often adopt them to govern internal affairs beyond default statutory rules. Without an agreement, default corporate or partnership rules apply, which may not reflect the owners’ intentions or provide adequate protections for governance and transfers. Adopting a written agreement allows owners to customize rights and obligations and avoid reliance on default provisions that could create unintended control or valuation outcomes. Legal review ensures the agreement is enforceable and consistent with state law.
Common dispute resolution options include negotiation, mediation, and arbitration. Agreements often require parties to attempt good-faith negotiation and mediation before pursuing litigation, which can preserve relationships and reduce time and cost associated with court proceedings. Arbitration clauses provide a private forum and final resolution without a jury, while mediation offers a facilitated path to settlement. The appropriate choice depends on owners’ preferences for confidentiality, speed, and finality, and whether specialized decision-makers are desirable.
Shareholder and partnership agreements can have tax consequences depending on transfer mechanisms, buyout payment structures, and the entity’s tax classification. For example, installment buyouts, transfers of partnership interests, or changes in control may trigger income, gift, or capital gains tax considerations. Consulting a tax advisor during drafting helps align agreement terms with tax planning goals and prevents unintended tax liabilities. Coordinating legal drafting with tax and accounting advice ensures that buy-sell funding and valuation methods are tax-efficient for the parties involved.
Begin by scheduling a consultation to discuss ownership structure, business goals, and potential risks. Gather relevant documents including articles of incorporation, bylaws, partnership agreements, financial statements, and any prior shareholder or investor agreements to facilitate a focused review. From there, a legal advisor will propose practical provisions, draft initial language, and guide negotiation and execution. Early engagement ensures the agreement is tailored to the company’s needs and reduces the likelihood of disruptive disputes later.
