Shareholder agreements

Shareholder agreements

The Illinois Business Corporation Act (BCA) permits shareholder agreements, subject to three limited restrictions (805 ILCS 5/7.71). A public corporation’s shareholder agreement may not: (1) perpetrate a fraud, (2) injure the public or the entity’s creditors, or (3) violate other statutes. 805 ILCS 5/7.71(a). This grants broad authority to shareholders of Illinois corporations to enter into written agreements and contracts to vote their shares, arrange corporate elections, or conduct other corporate business. Such contracts are enforceable and parties whose shareholder agreements have been violated are entitled to the full scope of money damages, injunctive, or other equitable relief. 805 ILCS 5/7.71(d).

Moreover, the Business Corporation Act specifically protects shareholder agreements from allegations that shareholder agreements impermissibly usurp the power of the board of directors or treat the corporation as a partnership. 805 ILCS 5/7.71(c).

Shareholder agreements are generally not binding on non-party shareholders unless (1) the non-party shareholder had “actual knowledge” of the shareholder agreement at the time she became a shareholder, or (2) the security certificates or other document representing the security “conspicuously referred to” the existence of the shareholder agreement. 805 ILCS 5/7.71(b).

Shareholders of closely held corporations have even broader authority to write shareholder agreements. See 805 ILCS 5/2A.40. Unlike section 7.71, agreements between shareholders in closely held corporations are not subject to fraud, public injury, or creditor injury restrictions. 805 ILCS 5/7.71(a).  Agreements between shareholders of a closely held corporation are likewise protected from allegations regarding usurpation of the authority of a board of directors and allegations that shareholder agreements impermissibly treat the corporation as a partnership. 805 ILCS 5/2A.40(b)-(c).

Shareholder agreements are often at the center of business disputes. Understanding the relationship between these agreements and the BCA is important to the resolution of these disputes.

 

To speak to one of our lawyers, get in touch with us at (312) 223-1699 or email Thomas E. Patterson at tpatterson@pattersonlawfirm.com for more advice and information.

Practice Areas
XML Sitemap