A shareholder agreement
establishes the terms, duties, obligation, rights, privileges between the shareholders of an Illinois corporation
. Its purpose, among many, is to protect the shareholders’ investments in the corporation and sets out the shareholders’ rights and responsibilities; regulates the sale of corporate shares; describes how the corporation will be run; provides an element of protection for minority shareholders; and delineates the decision-making process and how important decisions will be made.
A well-drafted, thoughtful shareholder agreement ensures that the corporation runs efficiently, effectively and ensure that shareholders’ responsibilities are accounted for. The provisions of the shareholder agreement establishes clarity and certainty as to decision-making, duties, and rights; reduce the chances of conflict between shareholders (which is very important); and establishes the platform necessary for the corporation to run smoothly. A shareholder agreement works in conjunction with the company’s articles of incorporation and corporate bylaws but should provide the shareholders more protection than the articles of incorporation because it is comprehensive, highly negotiated and includes more operational details and protective provisions defining or limiting shareholder responsibilities.