Houston Shareholder Agreement Lawyers – Drafting, Review & Customization

Shareholder Agreement Attorneys Serving LLCs, Corporations, and Professional Entities in Houston and Across Texas

You’ve formed your business. Now comes the step many owners overlook: putting a shareholder agreement in place.

A shareholder agreement is the internal governing document that defines how your company actually operates – who has authority over what, how decisions get made, what happens when a shareholder wants out, and how disputes are resolved. Without one, your entity will be governed by Texas state law defaults, and those defaults may not reflect your intent or the expectations you and your co-owners actually share.

Partner disputes, unexpected departures, deadlocked boards – these situations happen. A well-drafted shareholder agreement addresses them before they become litigation.

At Hendershot Cowart P.C., our Houston-based business attorneys draft, review, and negotiate shareholder agreements tailored to the specific needs, goals, and risks of your business – not a template.

Call Hendershot Cowart P.C. today at (713) 783-3110 or contact us online to schedule a meeting with a shareholder agreement attorney in Houston.

On This Page

• What Is a Shareholder Agreement?
• Who Needs a Shareholder Agreement?
• What Does a Shareholder Agreement Cover? Key Elements & Provisions
• Texas Shareholder Agreement Law for Corporations, LLCs, & Professional Entities
• How Our Shareholder Agreement Attorneys Can Help
• Frequently Asked Questions

What Is a Shareholder Agreement?

A shareholder agreement is a legal document that defines the rights, responsibilities, and obligations of shareholders in a company. More importantly, it's your blueprint for the unexpected – a framework that establishes how the company will be governed and managed, and how shareholder interests will be protected, before conflict forces those questions into a courtroom.

The key advantage of a shareholder agreement is timing. When you negotiate its terms during formation or a period of goodwill among owners, cooler heads can shape outcomes that reflect the actual goals and values of the people involved. Wait until a dispute arises, and those same conversations become far more expensive – and far less predictable.

Who Needs a Shareholder Agreement?

Any company – whether organized as an LLC, Corporation, or partnership – with more than one shareholder, especially if they are actively involved in the business, should have a shareholder agreement.

Shareholder agreements are especially essential in businesses with:

• Unequal ownership: When shareholders have unequal ownership percentages, the agreement ensures everyone understands their voting rights, control, and profit distribution.
• A complex business structure: Companies with complicated ownership structures, subsidiaries, or intellectual property considerations need a well-defined agreement.
• Family or friends as shareholders: Involving family or friends can involve emotional complexities. An agreement can establish clear boundaries and prevent future misunderstandings.

What Does a Shareholder Agreement Cover? Key Elements & Provisions

At Hendershot Cowart P.C., we've developed a checklist of questions to work through when forming a Texas entity – because what goes into a shareholder agreement should be tailored to your specific business objectives, not copied from a template. Our checklist reflects nearly 40 years of experience handling business owner disputes and knowing firsthand what happens when these issues go unaddressed.

The specific provisions vary by business, but a comprehensive agreement should address the following key areas – each a common source of disputes when left unresolved:

• Ownership, Equity Distribution & Share Valuation: Defines how shares are allocated among shareholders, including the structure of equity compensation, stock options, vesting schedules, and pre-emptive rights. Critically, the agreement should establish a method for valuing shares in advance – one of the most contentious issues in any shareholder dispute. Without an agreed valuation methodology, determining what a shareholder’s interest is worth when they want to exit can become a significant and expensive problem.
• Management, Voting Rights, and Decision-Making: Specifies how the company will be managed and the decision-making process. This may include details on the appointment of directors, voting rights, and procedures for major decisions.
• Roles and Responsibilities: Outlines the roles and responsibilities of each shareholder, including any specific contributions they are expected to make to the company.
• Fiduciary Duties: For LLCs, the company agreement may expressly expand or restrict fiduciary duties owed among members and managers – a powerful lever that has no direct equivalent in the corporate context. 
• Transfer of Shares: Sets out the conditions under which shareholders can transfer their shares and any restrictions or rights of first refusal that may apply. May also establish a valuation method to establish a purchase or sales price for individual shares.
• Dividends and Distributions: Establishes how profits will be distributed among the shareholders, including any rules for declaring dividends.
• Dispute Resolution: Includes mechanisms for resolving disputes among shareholders, such as arbitration or mediation processes, to avoid legal battles that could harm the company.
• Exit Strategies: Addresses what happens when a shareholder wants to leave the business voluntarily, is removed, dies, or becomes disabled. This includes buy-sell provisions, dissolution triggers, and procedures for winding down if no other resolution is possible.
• Drag-Along and Tag-Along Rights: Drag-along rights allow majority shareholders to compel minority shareholders to participate in a sale of the company on the same terms. Tag-along rights protect minority shareholders by giving them the option to join in any sale the majority negotiates with a third party on the same price and conditions. These provisions – and the notice, threshold, and procedural requirements attached to them – should be negotiated and clearly defined before any sale process begins.
• Confidentiality and Non-Compete Clauses: Protects sensitive information and may restrict shareholders from engaging in competitive activities.
• Financing Arrangements: Addresses how the company will secure funding, whether through loans, equity offerings, or other means, and how existing shareholders may be affected.

Texas Shareholder Agreement Law: Corporations vs. LLCs vs. Professional Entities

Texas law provides a flexible but distinct framework for governing agreements among equity holders, and the rules differ significantly depending on how your business is organized. Understanding these distinctions matters – a shareholder agreement that is valid for a corporation may be unenforceable for an LLC, and vice versa.

Shareholder Agreements for Texas Corporations

To be valid and enforceable under the Texas Business Organizations Code (TBOC), a Texas corporate shareholder agreement must be:

1. In writing (either in the certificate of formation or bylaws, or in a subsequent written agreement); 
2. Signed by all shareholders at the time of execution; and 
3. Made known to the corporation (e.g., shareholders or stock purchasers who are not parties to the agreement are given notice). 

Beyond these three formal requirements, Texas law grants corporate founders and owners broad freedom to dictate for themselves the rights, duties, and procedures that govern their relationship, including: 

• Restricting or eliminating the board of directors; 
• Determining employment terms; 
• Governing distributions and profit allocation; 
• Establishing voting rights (including disproportionate voting); 
• Authorizing arbitration or deadlock-resolution mechanisms; 
• Enhancing legal protections for management decisions and business disputes; and
• Broadly governing the corporation’s affairs as if it were a partnership. 

Note: These shareholder agreement rules do not apply to publicly traded corporations, which are governed by federal securities laws enforced by the Securities and Exchange Commission (SEC).

Company Agreements for Texas LLCs

For Texas LLCs, the equivalent of a shareholder agreement is called a “company agreement” (also referred to as an operating agreement). Under Texas law, the company agreement governs the relations among members, managers, officers, and the LLC itself, and may contain any provision for the regulation and management of LLC affairs not inconsistent with law.

The LLC framework is significantly more flexible than the corporate framework in several important ways:

• The agreement is binding on all members, managers, and assignees regardless of whether they personally signed it – a sharp contrast to the corporate rule requiring execution by all shareholders.
• Statutory default rules apply only where the agreement is silent, giving members far greater flexibility to tailor their governance.
• An LLC company agreement can expressly expand, restrict, or eliminate fiduciary duties – including duties of loyalty and care – owed among members and managers.

Professional Entities: PLLCs, Professional Corporations, and Professional Associations

Attorneys, physicians, dentists, CPAs, architects, veterinarians, and other licensed professionals typically organize their practices as professional LLCs (PLLCs), professional corporations (PCs), or professional associations (PAs). For these entities, Texas law imposes mandatory restrictions that preempt conflicting LLC and corporation rules.

These restrictions apply to governing agreements for all professional entity types in Texas and ensure that only licensed professionals in the applicable field hold interests and exercise governance authority:

• Only “professional individuals” – persons licensed to provide the same professional service as the entity – may be owners or governing persons. 
• Transfer of interests is restricted to licensed professionals – a mandatory constraint that cannot be waived in the agreement.
• Physicians may not use a PC and must instead organize as a PA or PLLC. PCs may only have individuals (not entities) as governing persons, and physicians must retain majority ownership and full control of the entity to comply with the prohibition against the corporate practice of medicine.  
• For professional corporations, the TBOC expressly authorizes the governing documents to specify the price and terms for redemption of shares upon a shareholder’s death or disqualification.

If your practice is organized as a PLLC, PC, or PA – or if you are a dental practice, medical group, law firm, or other professional entity – your shareholder or company agreement must be carefully drafted to comply with these additional requirements. Our attorneys have experience advising dental practices, medical groups, and other professional entities on governance structures specific to their profession and licensing obligations.

How Our Shareholder Agreement Attorneys Can Help

Drafting a shareholder agreement that truly protects your interests requires more than filling in a template. Our attorneys ask the questions that surface the issues you may not have thought to raise – the scenarios most likely to cause conflict, the provisions most commonly overlooked, and the drafting choices that can make or break enforceability under Texas law.

Our shareholder agreement services include:

• Drafting new shareholder agreements customized to your entity type, ownership structure, and business goals
• Reviewing and negotiating existing shareholder agreements – including agreements presented to you by co-owners or investors
• Advising on buy-sell provisions, valuation methodologies, and exit structures
• Structuring drag-along and tag-along provisions, rights of first refusal, and transfer restrictions
• Drafting IP assignment and confidentiality provisions
• Advising on the enforceability of existing provisions and identifying gaps that could leave you exposed
• Updating existing agreements to reflect changes in ownership, structure, or applicable law

Our team at Hendershot Cowart P.C. brings more than 150 years of combined legal experience and a deep background in both transactional work and business litigation. That perspective matters: we draft agreements with an eye toward what happens if things go wrong, because we’ve seen what goes wrong when agreements are silent, vague, or unenforceable.

To learn more about our services or to discuss a potential business formation or shareholder agreement with an attorney from our team, call  (713) 783-3110 or contact us online. 

Frequently Asked Questions

Is a shareholder agreement necessary?

A shareholder agreement is not legally required in Texas, but it is critical to the smooth operation of a business and is recommended for any entity with more than one shareholder. For complex companies with multiple shareholders and investors, a formal agreement is even more crucial.

Even if you and the other shareholders verbally agree or believe you have a shared understanding of how authority and responsibility will be shared, this may not prevent misunderstandings or divergent interpretations of your verbal agreement down the road.

What happens if there is no shareholder agreement?

When a client comes to us about a shareholder dispute, our first question is: Do you have written agreements in place?

Without a written shareholder agreement:

• How will you determine the value of shares should one shareholder wish to exit the business?
• If one shareholder commits fraud or neglects their duties, how will you remove them?
• What happens if disagreements arise over dividend payments or compensation packages?
• What if a shareholder uses trade secrets to compete against the business under a separate entity?
• What if majority shareholders cease to communicate or distribute dividends to minority shareholders? What are their rights?
• What if shareholders disagree about a business decision?
• What will you do if a shareholder diverts company funds into a personal bank account?

These are all disputes our law firm has encountered or litigated. A shareholder agreement that outlines what should happen in these situations can resolve the dispute faster and more cost-effectively. Without one, your entity will be governed by state law, which does not necessarily account for the details of your business and its relationship with shareholders.

Is it too late to implement a shareholder agreement?

The best time to put a shareholder agreement in place is as early as possible – ideally at the formation of the company when the first shares are issued. That said, it is never too late to put a shareholder agreement in place.

Here are some opportunities to introduce and execute a shareholder agreement:

• New shareholder comes on board: When bringing in a new shareholder, take this opportunity to introduce (or update) a shareholder agreement to reflect the rights and responsibilities of all shareholders – new and existing.
• Significant change in ownership: If the ownership structure changes significantly, you may have an opportunity to set right any tasks or issues overlooked when the company was initially formed. Introduce a shareholder agreement and ensure it reflects the current situation.
• Before a deadlock or dispute arises: Once a company faces a deadlock or dispute between shareholders, the time for coming to a clear agreement may have passed. Engage with shareholders now about their expectations and set those down in a formal written agreement.

Houston Shareholder Agreement Lawyers Trusted Throughout Texas

Shareholder agreements are the backbone of a successful business venture, and our team at Hendershot Cowart P.C. is dedicated to ensuring they are properly drafted to protect against conflict and tailored to the specific needs of our clients.

Contact Hendershot Cowart P.C. today to schedule a meeting with one of our Houston-based shareholder agreement attorneys.