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Shareholder agreement · San Jose · Registered LDA #268
Shareholder Agreement in San Jose — decide the exit before you need one
A co-founder walks away and keeps half the shares. A shareholder dies and their heirs become your new partners. A divorce puts a former spouse’s claim on the company. Each is common in small, closely held corporations, and each is far easier to settle on paper in advance. We prepare shareholder and buy-sell agreements for California corporations, at your direction.
In our San Jose office or remotely · English, Vietnamese and Cantonese · Spanish through our staff
- Two or more shareholders
- Buy-sell terms for death, disability, divorce and departure
- Share transfer limits and right of first refusal
- Spousal consent pages
What is a shareholder agreement, and why do California corporations need one?
A shareholder agreement is a private contract among a corporation’s owners that controls their shares: who may buy or sell them, at what price, and what happens when an owner leaves, becomes disabled, divorces or dies. California’s default rules do not supply those answers, and because California is a community property state, a shareholder’s spouse can have an interest in shares acquired during marriage. TruPoint Legal, a registered Legal Document Assistant (LDA #268) in San Jose, prepares shareholder agreements at your direction, together with corporate bylaws or on their own.
The problems it settles in advance
A co-founder leaves
Without a buyback right, a departed founder can keep voting shares in a company they no longer work for.
A shareholder dies
Shares pass to heirs who may not want to run the business, or who want a price the business cannot pay.
A shareholder divorces
Community property claims can reach shares. Spousal consent and valuation terms limit the disruption.
Shares sold to an outsider
A right of first refusal lets the company or the other owners buy first, before a stranger or competitor can.
Deadlock at 50/50
Tie-breaking and buyout procedures keep two equal owners from freezing the company.
S-Corp status lost by accident
A transfer to an ineligible owner ends the S election. Transfer limits can block it.
S-Corp formation →What your shareholder agreement covers
- Restrictions on transferring or pledging shares
- Right of first refusal for the corporation and the other shareholders
- Buy-sell triggers: death, disability, divorce, retirement, termination and bankruptcy
- Price: an agreed valuation method, and how the purchase is paid
- Tag-along and drag-along terms when the company is sold
- Board seats and voting arrangements among shareholders
- Deadlock procedures
- S-Corporation eligibility protections and spousal consents
With and without a shareholder agreement
| Situation | No agreement | With an agreement |
|---|---|---|
| Owner leaves the company | Keeps the shares; buyout only if they agree | Shares bought back on agreed terms |
| Owner dies | Heirs become co-owners | Estate is paid; shares stay with the business |
| Owner divorces | Former spouse may claim an interest | Spousal consent and buyout terms apply |
| Price disagreement | Negotiation or court | Valuation method already agreed |
Shareholder agreement questions
When should a shareholder agreement be signed?
Ideally when the corporation is formed and before shares are issued, while the owners agree and nobody knows who will be the one leaving. It can also be signed later by all current shareholders.
What happens to shares when a shareholder dies without an agreement?
The shares pass with the shareholder’s estate, so heirs can become co-owners of the business with the surviving owners. A buy-sell provision can instead give the corporation or the other owners the right or obligation to buy the shares at an agreed price.
Can a divorce affect my shares in California?
It can. California is a community property state, and shares acquired during marriage may be community property. A shareholder agreement with spousal consent sets how shares are handled and valued if that happens.
How does a shareholder agreement protect S-Corporation status?
An S-Corporation loses its status if shares pass to an ineligible owner, such as a nonresident alien or most entities. Transfer restrictions in the agreement can prohibit transfers that would end the election.
Is a shareholder agreement the same as bylaws?
No. Bylaws are the corporation’s operating rules. A shareholder agreement is a contract among the owners about their shares. Most corporations with more than one owner benefit from both. An LLC covers these topics in its operating agreement.
Other business formation services
Agree on the exit while everyone still agrees
Bring your co-owners to a free consultation. You decide the terms; we put them in a signed agreement.
TruPoint Legal LLC · Registered Legal Document Assistant LDA #268, Santa Clara County · CALDA member. We are not a law firm and do not give legal advice.