By Ben King, Solicitor, Aspiring Law
One of the many benefits of joining Aspiring Law’s BizClub is the range of practical, useful freebies.
A common barrier to reaching out for help, upskilling and managing risk in business can be the perceived cost of doing so or a lack of knowledge. As anyone who’s read much about BizClub knows, one of our main aims is to make important help and support accessible.
As part of that, we’ve started uploading key legal templates and questionnaires to the BizClub site, to which members have exclusive access. These are designed to get you thinking – and, hopefully, moving – on legal stuff you might usually put in the “too hard” basket.
These templates and questionnaires, in some cases, give you enough info and guidance to fly completely solo and get whatever needs to be put in place on a particular issue sorted. Remember, though, you have up to 30 minutes’ free time with us each month, if you need more of a steer.
There really is no excuse not to be getting your legal house in order. Don’t forget, either, we’ll be further boosting support and your knowledge throughout the year with specialised clinics and workshops, and will be regularly updating the library of templates.
This month, we’re shining the spotlight on the shareholders’ agreement questionnaire, which you can access in the members’-only section of the BizClub site.
Shareholders’ agreements
Often overlooked by business, a shareholders’ agreement is a “must have” for privately-held companies with independent groups of shareholders. It defines – and documents – who does what, what each party can expect to get in return, how the company is going to be managed and profits distributed.
Unlike a company’s constitution, the shareholders’ agreement is private to the parties.
As with any relationships, shareholders aren’t immune to trials and tribulations, mismatched expectations and things turning pear-shaped. A good shareholders' agreement should make a potentially tough path a bit smoother by providing a solid, pre-agreed road map to resolution.
While there can be a myriad of problems a shareholders’ agreement can help resolve, let’s look at one classic example: things haven’t worked out and a shareholder wants to get out of the business. A robust agreement will provide a framework of how to proceed in a way that was pre-determined at an earlier (possibly happier and calmer) time. This can be invaluable in helping alleviate arguments and tensions that can arise in these situations, and also make for a cleaner, quicker parting of ways.
So, where do you start with the template? There’s no one-size-fits-all shareholders’ agreement, but we’ve designed the questionnaire to be a great prompt, and get you really thinking about which key issues are important for your business’ particular situation – and the details can be filled in from there.
This is not a one-person job. There needs to be an open, frank and thorough discussion between shareholders as you all go through the template’s questions, so the ultimate agreement is accurately drafted and covers all eventualities and perspectives.
We’re here to help you draft it, if needs be, or to review your draft to ensure it’s going to achieve what you want it to.
Think of a shareholders’ agreement, though, as a living document. This is not one you file away and forget about. It needs to be reviewed. Put it on the annual review schedule with the budget and wider business planning – reassure yourselves nothing’s changed or is forecast which could bring about a need to alter the agreement.
Haul it out, too, any time there is a major change within the business. Common situations include the shareholding of a company becoming more complex with fresh investment or the introduction of new business partners. Put your agreement through the litmus test: does this still robustly cover the situations we need it to?
The great thing about the shareholders’ agreement checklist is it can be attached to your agreement, and you can easily test any new developments against the questionnaire.
A shareholders’ agreement is not going to be of great use to a one-person band, or possibly where a couple is running a business. For anyone else, however, it should really be one of your key business documents. Think of it as the business equivalent of a “contracting out” or “pre-nuptial” agreement.
We deal with business break-ups all the time – take our word for it: in the heat of the moment, trying to nut out issues that have never been discussed, agreed or, often, even considered, is neither fun nor, generally, productive or efficient.
Putting in place a clear, pre-agreed framework to deal with gnarly situations in a practical, equitable way takes a whole lot of angst, emotion and legal fees out of the equation when those with a holding in a company no longer share the same vision.