We are a newly formed corporation in NY and have just drafted our first shareholders' agreement. There are five shareholders in all but only four of us have signed the agreement. We are acting as if the agreement is valid and binding and the fifth shareholder has made no indication that he does not conform to the terms of the agreement. He has not, however, made any affirmative indication that he does agree. What is the effect of our agreement, it being only signed by four of the five shareholders. Is it valid and enforceable or somehow void under the statute of frauds? Please help. Thank you.
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You have not described the substance of the agreement, so it is difficult to know what the agreement is trying to accomplish. That said, the agreement is among, and binds, the shareholders who have signed it. The fifth shareholder is not bound by the agreement. Given that the shareholders are legal persons separate from the corporation, there is no requirement (unless the agreement, itself, imposes one) that all shareholders must sign for the agreement to take effect. You should assess whether one non-participating s/h will frustrate the purpose of the agreement and, if that will be the case, you should redouble your efforts to gain his participation. Your situation is a good example of why such agreements should be signed before, rather than after, shares are issued. Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship. |
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For the purpose of answering assume he is not a party to the agreement. Do shareholder agremeents need to be signed by each and every shareholder in order to have effect? It is not as if he does not agree to the terms, we just want to know the legal effect of the document being that it is unsigned by one shareholder. |
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My law school memory is a bit hazy, but I am pretty sure that the Statute of Frauds does not apply here. My thoughts (this does not constitute legal advice!)
Again, you must consult with an attorney in your jurisdiction (and the Corporation's jurisdiction if different from your physical location) Also note that the "corporation" itself should technically have a different attorney than the individual partners of the Corporation due to inherent conflicts of interest. Good Luck! |
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Without giving legal advice about the current situation, what if you created a new agreement which left out the fifth person, then make a board decision to include the fifth person if (s)he wishes (with a expiration date). That is, get something finished with the people who will participate and make the other optional. If this person is supposed to be vital to the company and you can't even get a signature on something that provides that person with something of tangible value, that sounds like a person you shouldn't be working with! |
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As usual you should get legal advice, however I doubt that the agreement is valid unless signed by all shareholders. |
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A shareholders' Agreement does not necessarily have to be signed by all shareholders.The shareholders' agreement would be valid. Indeed, a few shareholders may sometimes be involved in a project, an investment, ... which may not involve all the shareholders of a Company. However if the Fifth Shareholder is included(Rights, obligations...) in the agreement, he has to sign, otherwise the agreement wouldn't be enforceable. |
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