When and How Family Businesses Should Use Shareholder Agreements.

This article discusses the use of shareholder agreements (SAs) in family businesses. SAs are legally enforceable contracts that bind shareholders to make certain decisions together and limit the sale of shares. The article highlights that the presence of the right kind of SAs can have a positive effect on the market valuation of family firms. It also identifies key provisions in strong SAs, such as pre-emptive buying rights and decision-making processes, that can help protect shareholder value and signal to potential outside investors that the family leaders are aware of the risks and costs of succumbing to family demands. The article concludes that having a strong SA can improve shareholder value in family-controlled firms. [Extracted from the article]