Shareholder Agreements: Oral vs. Written

When forming a corporation, the owners, known as shareholders, should enter into a shareholder agreement that clarifies their rights and obligations as shareholders. A written shareholder agreement should make the terms of the agreement clear for the resolution of any future issues. While generally disfavored, upon proving several factors, Illinois courts may enforce oral shareholder agreements. However, it is not uncommon for shareholders to dispute what terms they orally agreed to when the corporation was formed. Accordingly, although they may be enforceable, oral shareholder agreements can lead to costly disputes between shareholders in the future. In fact, one shareholder may even claim that another does not actually own shares if the ownership cannot be shown in writing. While Illinois courts have upheld oral shareholder agreements, they are much more difficult to prove and are always subject to dispute. Therefore, written shareholder agreements should be drafted and executed when business partners form a corporation to make their respective rights and obligations clear with respect to all future events. To protect your business interests and discuss the preparation of a written shareholder agreement, call the Business Law Group today and speak to an attorney.