LLC A is a finance start-up company founded by CEO B, having C as the largest shareholder (hereinafter referred to as “company A,” “B,” “C” respectively). C acknowledged that Bis the perfect fit for managing the business and agreed to B being the CEO. To confirm this, they wrote a shareholders’ agreement that ensures the management rights of B.

However, shareholders’ agreement does not hold any binding against the company. The agreement may fail to guarantee its effectiveness because it is practically difficult to calculate the damages even in the case of violating the agreement. The agreement made between B and C was also of this type so as the equity holdings of B was less than that of C, B may lose his management rights whenever C changes his mind.

Ch&Kwon Law Offices reviewed their shareholders’ agreement and advised to insert clauses on liquidated damages or penalties, which is the general solution in such cases. Moreover, Cha&Kwon Law Offices also advised that it is practically possible for B to secure his management rights in other ways than contracts by suggesting diverse options to choose from.

The most important factor in actualizing such methods is to produce momentum to insert management right defense in articles or contracts. If CEOs suggest these management right defenses even in situations where there are no issues in business managing, shareholders may think the client is suspecting them, resulting in managerial disputes.

Based on diverse legal advice expertise on start-up companies, we provided suggestions on how B could persuade C the need to revise shareholders’ agreement. By accepting our suggestions, B could secure his management rights of company A. If you have any legal difficulties regarding start-up business management, please don’t hesitate to ask for legal consultation from Cha&Kwon Law Offices.