13 Oct Shareholder Agreements: Do I Really Need One?
Unless you are the only owner of the business, then the answer is always: Yes. When friends, relatives or even business associates decide to start a business together, the prospects often seem rosy. However, as the business progresses there are inevitable questions, issues and disputes (whether minor or not) that will arise and require specific answers. Having a shareholder agreement in place is like writing a rule book for your company and the relationship between the owners. The agreement will help govern key areas and provide guidance on how to answer tough questions the business may face, for example, where does the business get funds to grow? Will there be a cash call/contribution from owners, private investment, bank loan? Answering these types of questions and putting procedures in place for arbitrating disputes can help avoid a costly deadlock that hurts the business and strains owner relations. Non-competition covenants, voting rights, confidentiality provisions, salary and bonus decisions, can all be defined in an agreement amongst the shareholders. Similarly, buy-sell (or shotgun) clauses, rights of first refusal, share transfer restrictions and succession planning are important pieces that can be dealt with in a shareholder agreement.
When questions arise in your business, make sure you have your rulebook. If you don’t have yours yet, please feel free to give me a call so we can draft the guidelines for the success of your business.