What the agreement controls
In a closely held corporation, the bylaws and state law set the basic rules, but they leave many owner-level questions open. A shareholder agreement usually addresses who can sell shares and to whom, often through rights of first refusal or outright transfer restrictions. It may commit owners to vote for certain directors, require unanimous approval for major decisions, or give minority owners protections they would not otherwise have. Tag-along and drag-along provisions decide what happens when a majority wants to sell the company. In New York, some arrangements that limit the board's authority must appear in the certificate of incorporation to be effective, so the documents should be drafted together.
Deadlock and departure
With two equal owners, a deadlock can stop the business entirely, and the agreement is the natural place to decide how one will be broken. Options include mediation, a tie-breaking director, or a buyout mechanism in which one owner names a price and the other chooses whether to buy or sell at it. Departure is the other recurring issue: what happens to an owner's shares if they stop working in the business, are terminated, or want to retire. Without those provisions, owners often end up relying on court remedies such as a dissolution petition, which are slower and less predictable than a negotiated mechanism.
Starting the draft
We begin by asking each owner what they expect from the company and from each other, including how much time each will commit and how profits will be shared. We then look at whether a separate buy-sell agreement is needed for valuation and funding, or whether those terms belong in the shareholder agreement itself. If an agreement already exists, bring it along with the certificate of incorporation and bylaws, because inconsistencies among them are common. A shareholder agreement written while everyone is aligned is much easier to negotiate than one written during a dispute.
