Group of shareholders having a meeting

The Key to Drafting an Enforceable Shareholder Settlement

William B. Hanley April 7, 2021

According to the Securities Class Action Settlements – 2020 Review and Analysis by Cornerstone Research, there were 77 securities class action settlements totaling an aggregate settlement value of $4.2 billion. Agreements that determine how disputes between shareholders will be settled must be properly drafted to protect shareholders and prepare for potential contingencies.

For over 45 years, William B. Hanley, Attorney at Law, has been providing comprehensive legal guidance and strong representation to clients in shareholder settlement cases. He is available to discuss your situation, guide you through every step involved in drafting the settlement agreement, and ensure that it is enforceable.

William B. Hanley, Attorney at Law, is proud to serve clients throughout Irvine, Orange County, San Diego, and Los Angeles County, California.

What is a Shareholder Settlement?

In the course of running a business, certain issues often arise. Limited Liability Companies and Small Corporations — especially those with two or more shareholders — are advised to enter into a legal agreement to determine how issues and conflicts will be settled. A shareholder settlement is an agreement between a company’s shareholders stating how disputes between shareholders will be resolved and how shares can be sold and bought within the company.

Important Provisions of a Settlement

In order to ensure that a shareholder settlement agreement is enforceable, the following provisions must be included:

The Wording of the Release

The release language must be explicit, easy to understand, and must state the claims to be released in the event of fraud or breach of fiduciary duty.

Covenant Not to Sue

The shareholder settlement must include each party’s covenant not to sue regarding any matter, including claims and disputes arising from the agreement.

Representations and Warranties

In the shareholder settlement contract, there must be a section of representations and warranties.

Attorney Representation

Also, the existence of a legal counsel and the role of the attorney should be stated in the shareholder’s settlement agreement.

Agreement Drafting and Negotiation

What’s more, to ensure that the settlement agreement is enforceable:

  • All parties must be actively involved in drafting and negotiating the settlement agreement

  • All parties must agree that all provisions are original and non-overlapping

  • Each provision stated in the agreement must be carefully considered and negotiated

Existence of Litigation

If litigation is involved in the settlement agreement, it is important to state the fact of the lawsuit.

Knowledge and Judgment

The settlement agreement must also state that each shareholder is entering into it solely based on their own respective knowledge and discretion.

Fairness and Good Faith

The parties involved must certify that the agreement has been negotiated in good faith and is completely fair in all aspects to each shareholder.

There must also be provisions for mergers, disclaimers and waivers, and disclosures. An experienced business attorney can help draft and review the settlement agreement and ensure that it is enforceable.

Work with an Experienced Attorney

Having a properly drafted shareholders’ agreement is important to safeguard shareholders and offer them more protection against potential issues or breakups. When drafting a shareholder settlement, consulting with a knowledgeable California business attorney is crucial for proper guidance and to ensure that the agreement is enforceable.

William B. Hanley, Attorney at Law, has devoted his career to handling business litigation matters, including shareholder disputes and settlements. As your legal counsel, he can review your business’s situation, help draft a settlement agreement that sets out the shareholders’ rights and obligations, and outline how key decisions will be made in the event of fraud or breach of fiduciary duty. Even if you are involved in shareholder disputes, he will fight diligently to protect your rights and your interests.

Contact William B. Hanley, Attorney at Law, today to schedule a one-on-one case assessment with a knowledgeable California business litigation attorney. Attorney William B. Hanley can offer you the experienced legal counsel, assistance, and advocacy you need to make important decisions. He is proud to serve clients across Irvine, Orange County, San Diego County, and Los Angeles, California.