How to Legally Own Shares in a Company When You Are a Director

As a director in a public company, you must tread carefully among all of the regulations and restraints put upon you by the law, the company's bylaws, and by the shareholders themselves. However, you wouldn't be a passionate member of the board of directors if you didn't care about the company, which means you want to own shares in the company. Fortunately, it is possible to legally own shares in a company when you are a director.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Corporate attorney
• Computer with Internet access

Stay in the Clear When Purchasing Company Shares

1. Consult with a corporate lawyer before purchasing company shares. Since, by definition, a director assumes a supervisory role in the company, purchasing shares can constitute a conflict of interest.
2. Know that if there is anything deemed questionable about your acquisition of company shares, you may be forced to return all profits relating to the transaction.
3. Visit the Free Management Library Web site (see Resources, below) to find information on working with a board of directors.
4. Be aware that when a director purchases shares in the company, even legally, there is a supposition of conflict of interest and unfair dealing. However, it's possible to have your shares ratified by the company. Find out what the process is in your particular company before you purchase shares.
5. Sign a shareholders agreement. You may have to ask a lawyer to amend your current agreement to allow the director to purchase shares. You can find an example of a basic shareholder agreement document from LectLaw.com (see Resources, below).

Feel Confident About the Shares You Purchase

6. Keep meticulous records of your purchase of your company's stock.
7. Stay abreast of the stock purchases of other members of the board of directors as well. Remember, you have a fiduciary duty to each shareholder. They are paying your salary to ensure the strong future of the company, and your own interests and the interests of other directors come second to that primary function.

Tips & Warnings

• Get approval from the board and other important executives before buying shares. This can save you an incredible amount of hassle in the long run.
• Spend several hours with your attorney drafting a contract indicating your intent to purchase shares. Your board members should sign off on this to avoid any misunderstandings.
• When you buy shares of the company, know that your recent decisions as a director may be scrutinized to ensure that you did not make any self-serving decisions while managing the company's interests.
• To avoid liability as a director, make sure that every transaction would withstand complete transparency.