A shareholders agreement is essential for any new business partnership.
Just starting out in business with a new partner? Grand plans evolve, roles defined and everyone is happy. Now take the opportunity while everyone is on the same page to establish a shareholder agreement.
An Agreement will save tears, legal costs and frustrations when things go wrong. Especially if a business exit needs to happen or a business partner dies or needs to retire. Yes, a well-drafted agreement can take time to get it right
I have seen plenty of fights between shareholders. Money can make people mean, irrational and greedy. In business, each partner rights need to be respected. A shareholders agreement will assist to clarify what the shareholders original intent was.
Don’t think you will never have a dispute with your business partner. At some stage, a disagreement over a small matter if not handled correctly can lead to a major dispute.
A Shareholders Agreement may address similar matters to a standard off the shelf constitution that you use when you buy a company. Your agreement is more designed toward focusing on a range of issues and possible events. It attempts to outline potential circumstances that could arise such as partner exit, remuneration and authority.
Most standard Constitutions will be silent on matters that a shareholders agreement should document. Especially if there are specific requirements around the sale of business, funding and entry and exit of partners. A solicitor will be able to assist you in drafting the right clauses that are watertight in this area.
A well -designed agreement might include areas such as:
- specific roles,
- divided policy
- asset purchase decisions.
- The agreement should also have policies about adopting and amending business plans.
Other arguments can begin around partner remuneration. This includes, the Director’s cars and employing family and these are also worth addressing in the agreement.
CPA Australia has released a fact sheet worth a read about implementing a shareholders agreement.
Many disagreements arise around spending and direction of the business. Take time to look at how you will operate and work on what happens if a business partner needs to leave or sell out.
There are many aspects of your business that need planning.
If you are thinking that retirement is a nice idea then read our blog post https://www.gartlyadvisory.com.au/uncategorized/business-exit-planning/retirement-day-should-be-a-celebration/
Treat an agreement as a lifejacket.
A shareholders agreement keeps you afloat when you need it most. Hopefully, it gathers dust. However, when there is a shareholder dispute, a well-written agreement will save much heartache and angst when needed to be consulted.