Our firm often deals with lawsuits over old shareholder agreements that were drafted (at great expense) 15+ years ago by some other firm that no longer exists and where issues have arisen that none of the shareholders contemplated when the agreement was first signed. We often tell clients that in our experience of dealing with these agreements in the courtroom years later that it often makes sense to start simple with a written agreement. If you are a small company with two owners, zero employees, and no sales, you don’t need a 30 page shareholder agreement. All that will lead to is you not updating it for twenty years because you spent thousands of dollars on it the first time around. Better to periodically update it and address whatever issues are present in your business.
North Carolina also has a provision that deals with old shareholder agreements. N.C.G.S. 55-7-31 states that “an agreement between two or more shareholders, if in writing and signed by the parties thereto, may provide that in the exercise of any voting rights of shares held by the parties, including any vote with respect to directors, such shares shall be voted as provided by the agreement, or as the parties may agree, or as determined in accordance with any procedure (including arbitration) specified in the agreement. Such agreement shall be valid as between the parties thereto for not more than 10 years from the date of its execution.” That agreement can be extended if written and signed by all parties. But, if you don’t extend it, any shareholder agreement that addresses voting rights (which would probably be almost every one of these longer 30 page shareholder agreements) it’s only good for 10 years barring a written extension.
We recently filed a motion to dismiss in a Business Court case on this very issue; arguing that N.C.G.S. 55-7-31(a) had rendered a shareholder agreement completely unenforceable. The case settled for a buy-out of shares (and a valuation of zero on the actual claim that had been filed against our client) before the court had a chance to decide the issue.
We don’t draft extensive shareholder agreements (we are happy to point you towards some good law firms who can do so if you decide that is your best course of action); our job is to get involved when there’s a dispute among shareholders, but some informal advice would be to not draft an agreement that you’re not going to be inclined to revisit every few years because it was too expensive to do the first time. If you’ve already done that, you should look at a written agreement to renew the rights of the older agreement or else that agreement may not be worth the paper it’s written on.
Maginnis Howard handles business litigation matters between business or intra-company issues such as shareholder disputes. Contact our firm at 919.526.0450 or send an email to info@carolionalaw.com with specifics or to schedule a consultation to see if we can be of assistance. You can also use our contact page. If you have received a summons/been served by the sheriff, please let us know as soon as you can because it does often take a few days to get something scheduled with our office.
