This week on Write-or-Die Girl, lawyer Alex Koch schools small business owners on preventing future shareholder squabbles by firming up company terms in writing.
All individuals starting a business set out with best intentions. However, most businesses go through both good and bad times, as circumstances change along the way.
When a company is owned by more than one person, preparing a shareholders’ agreement can help business owners ensure a smoother resolution to any issues and reduce the impact of these issues on their business.
The best time to set a road map for how to deal with disputes is at the earliest possible time — when the co-founders are on the same page.
How do I know if I need an agreement?
A shareholders’ agreement isn’t simply an issue to be considered by a company with co-founders. In certain circumstances, even solo business owners should consider having a shareholders’ agreement (or a shareholder’s declaration) prepared—for example, when a business owner is preparing for future expansions or is trying to provide clarity on what happens should the solopreneur pass on or become permanently disabled.
There is no legal requirement for any company to have a shareholders’ agreement; however, it is in the best interests of the shareholders, as well as the business itself, to have one in place.
Shareholders’ agreements typically cover the following areas:
- Company decision-making
- How disputes are to be handled
- How additional individuals can become shareholders
- How existing shareholders can exit the company and transfer their shares
- How dividends are paid by the company
- What happens when existing shareholders pass on, become permanently disabled, are bankrupt, or go through a divorce proceeding
The cost of preparing a shareholders’ agreement will be insignificant if it helps prevent or diminish a future dispute. There is no such thing as a “model” shareholders’ agreement, as these documents are flexible and allow shareholders to negotiate their rights and obligations.
Contact Insight Legal if you’d like to learn more about shareholders’ agreements and whether your company needs one.
Alex will be at the CNE’s Innovation Garage this weekend, August 18-20, ready to answer questions about the legal aspects of your small business. Drop by, and be sure to tell her Write-or-die girl sent you. 😉