Members of all the professions write articles and tell stories about the importance of doing this or doing that. The cynical among us can’t help wondering if they are real stories or made up to scare you into action, so they can sell their services. Maybe we’re guilty, as charged?
But we want to share this true story with you to minimise the risk that you will leave yourself vulnerable. It’s about the importance of having a partnership or shareholders’ agreement for an entity running a business.
In a case we have become involved in right now, we have seen a family relationship ripped apart. Where there was once a presumption of unconditional love and trust, the opposite is now true.
It’s actually heart-breaking to watch (yes, we do have a heart!). And since there is no shareholders’ agreement in place, resolution of the dispute has become a lengthy, costly legal process.
A shareholders’ agreement or partnership agreement sets the ground rules that affect shareholders in a company (similar agreements exist for other types of arrangements – be it a partnership, trust, joint venture or other). This can include, but is not limited to, appointment to the Board, payment of dividends or drawings; decision-making powers, any directors’ employment relationship and the calculation of associated entitlements; loans to and from the company; how shareholders can (or in some circumstances, must) enter or leave the company; specifying “trigger “events such as separation or divorce; selling the business, selling or winding up the company, including valuing and distributing assets; and dispute resolution procedures.
For those of you that are perhaps avoiding the conversations that need to be had or avoiding the (modest) cost of preparing a shareholders’ agreement, please don’t.
If you are thinking that this can never happen to you or will never happen to you – think again. Going through family breakdown is difficult enough without the added stress and costs of a legal dispute over the family business.
I implore you to put a shareholders’ agreement in place.
(And yep, we can help and we’d be happy to do so!)