Making A Shareholders' Agreement - Checklist
You should consider a shareholders' agreement as a "pre-nuptial" agreement. You are trying to reach a consensus in advance of a possible breakdown in the relationship. 1 in 3 marriages fail and the failure rate for business is much higher. Negotiating with your business partners ought to be a lot easier than with your spouse as the "don't you love me" doesn't come into it!
Here is a non-exhaustive list which you could use as a limited agenda for discussions between proposed or existing shareholders. This should be followed by detailed legal advice and then a written agreement between the parties.
1. Alternatives: limited company, partnership or limited liability partnership etc
Assuming you select a limited company:
2. Purpose of venture. Business plan. Expectations.
3. Share split a. Implications of key thresholds: 5%, 10%, >25%, 50%, >50%, 75%b. Deadlock vs controlling stake vs negative control/ability to blockc. "Ordinary", "Special", "Written" resolutionsd. class: ordinary, preferred, redeemable etce. dilution (now and future)
4. Directorsa. Day-to-day managementb. How manyc. Right to appoint/removed. Chairman; casting vote?e. Service agreements: salary level?
5. Company name, company secretary, registered office, accountant/auditor
6. Finance a. Share capital vs debti. Allotment of new sharesii. Cash/non-cashiii. Director's loaniv. Second roundb. Security? Debentures/charges. Personal guarantees. Indemnity to each other?c. Working capitald. Bank mandate: joint signatories?e. Dividend policyi. consider minimum % profits to be distributed or retained if no agreementii. dividend versus salary balance
7. Business plan and budget incl cash flow; agreed intervals
8. Exit strategy (the important one!)a. Share valuation mechanismb. Discount/premium for certain stakesc. Ability to transfer part or whole stake onlyd. Staggered exit - tax and valuation implicationse. Trigger events egi. Death/serious illnessii. Divorceiii. Trade saleiv. One party wishes to leavef. When to wind company up g. Pre-emption rightsh. Ability to transfer to spouse/childreni. "Shoot-out" provision: party receiving notice must elect either to purchase shares of other party or sell its shares to that partyj. "Bring-along" provision: transferor must require third party purchaser to offer to buy also the other party's interest at the same price per sharek. "Drag-along" provision: selling party can oblige other party also to transfer its shares to the same purchaserl. Put/call options included at outset
9. Matters requiring unanimity
10. Dispute/deadlock resolution mechanism (Ultimate sanction: specific right after minimum period for either party to call for liquidation)
11. Personal tax planning issues affecting structure
12. Intellectual property
15. Life/term assurance: key man, cross option etc
As you can see there is a lot to consider when you go into business with some one. Better that you discuss these issues up front. We have run through this list with numerous clients and the most frequent feedback is: I really didn't think about that. Thanks. Hopefully the answers you come up with don't mean that your business relationship founders immediately. If you find it difficult to reach a consensus with your business partner now on key issues let this be an alarm bell. Consensus is often more difficult to achieve further down the road.
Source: Free Articles from ArticlesFactory.com
Related Tags: making, a, agreement, shareholders, checklist
Martin Truman is a qualified solicitor who advises clients all over the UK. You can find out more about Shareholder Agreements and how best to draw one up for your company from the Shareholder Agreement section of his legal advice web site. Your Article Search Directory : Find in Articles
Recent articles in this category:
- How to Hire a Personal Injury Attorney Toronto
There is no question that suffering from a personal injury is an incredibly difficult thing to have
- Finding the Best Personal Injury Lawyer
Should you be the victim of an accident that just simply was not your fault and you have received an
- DUI Perpetrators Must Seek Expert Help
It is obvious, as we progress further into the future, that behavior that puts others at risk is not
- To Find the Best New York Attorney Buffalo is Still the Best Choice
If you need an attorney in New York, you would surely have a lot of options. New York has 10 cities
- If You Need a Great Wisconsin Attorney Madison is the Way to Go
Are you in need of a great Wisconsin attorney? If you are from Wisconsin and need a great attorney M
- What Is The Importance Of An LLP Agreement
An LLP agreement is an important contract, since without such a document the Limited Liability Partn
- Personal Injury Lawyers - Get Help at Your Doorstep When Injured
As soon as you are involved in an accident, it is usually quite common for you to be injured maybe i
- Personal Injury Lawyers - Knowing If You Are Entitled For a Claim
No doubts accidents do take place; however that does not mean that you should take up the liabilitie
- Personal Injury Lawyers - Claiming Compensation For Your Injuries Some Tips
When you are injured, the next thing is you should know what legal rights you have; this will provid
- Personal Injury Lawyers Help Victims of Car Accident Claim Financial Damages
People living in Toronto go to work through different modes of transports like trains, buses and car
Most viewed articles in this category:
- Mesothelioma Lawyer - Asbestos Attorney - Mesothelioma Lawsuits & Lung Cancer Information
Mesothelioma is one of the most tragic diseases ever to strike the working man. Due to decades of m
- Michigan Personal Injury Lawyer Courts
The Michigan Courts were created by the Constitution of 1963, Article VI, and Section 1, under which
- What is Entrapment?
Question: What is entrapment?Criminal Defense Lawyer: Entrapment is a defense raised by a defendan
- Top 10 Tips On How To Win Your Road Traffic Accident Case
If you happen to be pursuing this thing right now then here are the top ten tips on how to win your
- Agency Law
Agency Law The origins of the doctrine of necessitous intervention by someone who is in a legal rel
- Procedure Of DWI In U.S.A.
ALR (Administrative License Revocation) A Program to suspend the driving license Of Drivers Which a
- Mesothelioma Lawsuits Surging in United States
Mesothelioma is a cancerous disease where malignant cells develop in the lining of the chest or the
- Forensic DNA Testing
Forensics is defined as the study of evidence found at a crime scene and used in a court of law. For
- Arizona Drunk Driving Law, Az Drunk Driving Law & Arizona Drunk Driving Charges
Arizona drunk driving is one of the most common and deadly mistakes in Arizona while driving. Defens
- Worried About the Fair Debt Collection Practices Act?
Do you work for a financial institution that collects debts? If so, do you know whether the Fair De