What Makes an Agreement Legally Enforceable?

A shareholder agreement is a private contract between the owners of a corporation. It supplements the Certificate of Incorporation and Corporate Bylaws by detailing exactly how the business is run, how shares are transferred, and how disputes are resolved. To be truly Legally Enforceable in the State of New Jersey, an agreement must address several technical layers:

1. Governance and Decision-Making

The agreement defines who makes the “big” decisions. Does a simple majority suffice, or is a super-majority required for actions like buying or selling a business? We codify these rules to prevent “deadlock,” a situation where two 50/50 owners cannot agree, effectively paralyzing the company.

2. Share Transfer Restrictions (Buy-Sell Provisions)

This is the “pre-nuptial agreement” for business partners. It dictates what happens if a shareholder wants to leave, becomes disabled, or passes away. Without Legally Enforceable “Right of First Refusal” or “Drag-Along/Tag-Along” rights, you could find yourself in business with a partner’s ex-spouse or an unknown third-party competitor.

3. Valuation Methodologies

Disputes often arise not over if a shareholder can be bought out, but for how much. A strong agreement specifies the valuation formula—whether it’s based on book value, a multiple of earnings, or a third-party business valuation guidance.

4. Dispute Resolution Mechanisms

If a conflict occurs, where does it go? We draft clauses that mandate mediation or arbitration in specific New Jersey venues, keeping sensitive corporate laundry out of the public court records and saving thousands in litigation costs.