There are so many times I have clients come and see me and they’ve fallen out with their business partner. And the biggest problem is that they’ve never had a shareholder agreement when they started getting into an enterprise with each other.
What is a shareholders’ agreement?
A shareholder agreement is basically an understanding between the shareholders, and we’re talking about companies here, between the shareholders about how the business is run,Who are the Directors? What happens if you and I break up in terms of our business relationship?
What happens if one of us dies? What happens if, all of the sudden, somebody has to exit, not because of any problem between us, but I’ve got another family member and I need to cash in.
So all these things are great if you work them out at the very beginning. Because when you’re in crisis time it’s very hard to go back and try and change things.
Why is important to have a shareholders’ agreement?
A shareholder agreement is so important that it gives you a clear set of guidelines – unemotional.
That when an event happens, that you’ve got a system or a regulation between you two, in place, to deal with it. It’s best put together at the beginning of your involvement with each other.
How does a shareholders’ agreement work?
A company is run through its constitution. Just like we have an Australian constitution, America has their own constitution.
A company has a constitution. And that gives you your rules and regulations onhow to run your business.
However, there are things that it misses out on. So a shareholder agreement can come in and fill in some of those gaps and provide more operational guidelines on
how the business will run or how the business will exit.
What can a shareholders’ agreement cover?
A shareholder agreement can cover off how much an individual shareholder, director or a partner is allowed to spend without having a board meeting. It can cover off if somebody wants to sell their business, do they have to go and offer their shares to the other business partner first?
It covers off if they get an offer from a major company whether or not they should all just be forced to sign over their shares to move along with the good offer.
So all these sorts of operational issues get covered in a good shareholders’ agreement and help the business form a really good legal and financial foundation for the future.
How to get a shareholders’ agreement
So the best way is to go and contact a lawyer. In fact, you need to contact a lawyer, it’s a legal document. So, find a good lawyer and then start your process.
Typically, a shareholder agreement, depending of course on your lawyer, can cost anywhere probably between $1,000 and $7,000. Maybe even more, if it’s more complex.
You could probably try and do it yourself, but I would not recommend that, whatsoever.
Pay the money, pay the professional because you will actually save yourself money down the track.