Article by Kristen Toppin 

Let’s be honest, when you start a family business, you’re usually thinking about things like products, customers, maybe even how to get cousin Eddie to actually show up on time. What you're not usually thinking about is a shareholder agreement. It sounds dry, it sounds legal-ish, and frankly, it sounds like the kind of thing that can wait. But here’s the twist, it absolutely shouldn’t.

A shareholder agreement is like a prenup for your family business. It lays out the rules of the road for anyone who owns a piece of the company, family or not. Think of it as your family business’s instruction manual, but for what happens when things don’t go quite according to plan. Who gets to make decisions? What happens if someone wants to sell their shares? What if there's a disagreement? A shareholder agreement doesn’t just answer these questions; it prevents much of the drama that tends to arise when those answers are unclear.

In a family business, relationships are your greatest asset, and also, sometimes, your greatest complication. A shareholder agreement helps keep the peace by clearly defining each person’s rights, responsibilities, and limitations. It sets expectations from the start, which is much easier than trying to reverse engineer them after something goes sideways. For example, maybe your sister wants to step back from day-to-day operations, but still keep her shares. Without an agreement, that situation can get murky fast. With one, there’s a plan in place for how that works, and no one ends up crying in the storage room.

It also protects the business from unexpected curveballs. Say a shareholder passes away or gets divorced. Where do their shares go? Can someone outside the family suddenly become part part-owner of your grandfather’s life’s work? A well-drafted shareholder agreement answers those questions before they become crises. It helps keep control of the business in the right hands and avoids uncomfortable surprises that can rattle even the most tight-knit crew.

And then there’s the not-so-small matter of growth. If you’re planning to bring in outside investors, apply for financing, or even prepare for a future sale, having a shareholder agreement shows you’re serious. It tells banks, investors, and potential buyers that you’re not just a family making decisions over Sunday dinner, you’re a real business with structure, clarity, and a plan for the future.

Of course, putting together a shareholder agreement might not be as fun as a new product launch or your annual company picnic, but it’s one of the smartest moves a family business can make. It doesn’t mean you don’t trust each other. It means you do trust each other and you’re committed to making sure that trust lasts for generations.

So, if you haven’t created a shareholder agreement yet, consider this your nudge. Sit down with a good attorney (preferably one who understands family businesses), talk through the big questions, and get something in writing. You’ll thank yourself later, probably at a future family gathering where everyone’s getting along, the business is humming, and the only drama is about who forgot to bring dessert.