Shareholder Agreements in a Business Partnership
The One Major Thing Required for Having Partners in Business
Sometimes when one first gets into business there are advantages to having the business in conjunction with other people, or just one other person. This is called a business partnership, even though it can take different legal forms in business.
Partners or Partnership?
Entering into a new business with other people isn’t necessarily a “partnership” in the legal sense. A partnership is like a sole proprietorship for multiple people. Partners are all of the people involved in a business ownership and control. When entering such a relationship your finances and livelihood can rely on the abilities and whims of others. Therefore it is imperative that you protect yourself. It really doesn’t matter whether you are in a partnership or have corporate business partners; either way there are certain steps you must take to protect all parties. Expectations can change and stress always brings out the worst in everyone. Make sure you have the basics covered for everyone
Have a Shareholder Agreement
Of course you must have a shareholder agreement. It is okay to draw up the initial version on your own, or even use a kit (some of these are available through places like Office Depot, Staples, and some registries offices). The quality of these kits varies, so be cautious. There are certain things that are absolutes that you must include, regardless of anything else. Such items help to clarify expectations and roles for all involved.
- Include amounts that partners must contribute to the business, whether in dollars or in expertise and time. These should be clearly spelled out so there are no confusions at any point now or in the future.
- Include remuneration, if any, each partner is to get, and when.
- Include contingencies if anything were to happen with any of the partners. People do get into accidents, die, or simply walk away. Whether we like it or not, it is part of life.
- Include contingencies for if the business needs money and how each partner is going to contribute or how the money will be raised. Make sure you specify each partner’s role in this process.
- Include management roles and clearly outline these.
- Include any contingencies if the points of the agreement are not being met.
- Include a clause for if the company is to dissolve and what happens and who plays what role. And include who gets what and who is responsible for what - there could be liabilties, and there could be assets.
- Include some contingency clause for when a partner does not meet his obligations. It might be a good idea to have within this a dismissal clause to buy out or “fire” the partner, depending on contributions made.
- And always include a contingency for when a partner wants to leave, and what his options are to leave the business.
If there are any concerns you or your partner(s) have, make sure to include them, no matter how trivial they may seem. This can save a lot of headache and heartache down the road.
Get the Agreement Reviewed
Once you have your initial agreement drawn up have it reviewed by legal counsel. While this isn’t 100% necessary in all instances, it is well worth the added expense. Better a little of money put out now than a whole lot later, because you missed something in your business partnership agreement!
Good Luck!
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