Shareholder Agreements in Idaho

Jul 13, 2018 | Litigation

Idaho Code allows the shareholders of a corporation to sign a shareholder agreement. Idaho Code § 30-29-732. A shareholder agreement may address many different aspects of corporate governance. For example:

  1. A shareholder agreement may eliminate the board of directors or restrict the board’s power.
  2. A shareholder agreement may change how distributions are made to the shareholders. In most cases, distributions are made based on percentage of ownership. If a shareholder owns 50% of the stock, she gets 50% of the distributions. A shareholder agreement may change how distributions are made.
  3. A shareholder agreement may set who is a director and officer of the corporation. It may also set the term of office of a director or officer. It may set how a director or office is selected.
  4. A shareholder agreement may set out the voting power of shareholders and directors that is different than their voting power. By default, if a shareholder owns 50% of the stock, she has 50% of the voting power. The shareholder agreement can change this to provide more or less power to certain a shareholder.
  5. A shareholder agreement may state when property is transferred to a shareholder. It may also set out the services that a shareholder, director, officer or employee will provide to the corporation and how they will be paid. In cases where a shareholder provides “sweat equity”, it is important to decide how that shareholder is paid for that work or disputes will often arise.
  6. A shareholder agreement may transfer to a shareholder or any other person all or part of the power of the corporation. This includes the transfer of power to a third party when there is a deadlock between the directors or shareholders. This can be helpful to avoid lawsuits. If there is a deadlock, the shareholders may appoint a person to resolve the dispute. The decision of that person is binding if the shareholder agreement give the person the power to settle the dispute.
  7. A shareholder agreement may provide that the corporation dissolves when a certain event, including the request of a shareholder.
  8. A shareholder agreement may set out other terms and conditions as long as those terms and conditions do not violate public policy.

Idaho Code § 30-29-732(1) (2018).

To be binding, the shareholder agreement can set written into the articles of incorporation or bylaws. More commonly, it is a written agreement that is signed by all persons who are shareholders at the time of the agreement and is made known to the corporation. Idaho Code § 30-29-732(2) (2018). A shareholder agreement is only valid for 10 years unless it has a different term (longer or shorter). Idaho Code § 30-29-732(2)(c) (2018).