Do I even need a shareholder agreement? Yes, they are important
A shareholder agreement between business partners is like having good comprehensive car insurance. You hope you don’t ever need to use it, but when you do, you’re sure glad you had the protection to cover you in hard situations.
A shareholder agreement sets out exactly how you and your business partners will run the business — how decisions will be made, what happens if someone wants to sell their share, or worse, what happens if someone goes rogue.
In my experience relying on unwritten rules or handshake agreements means serious problems and unexpected costs. If a partner borrows $50,000 in your business name, but you and the other partners didn’t authorise it, what happens?
Without a shareholder agreement you would have no recourse to kick them out of the partnership or buy out their share less the cost of the loan. An OFRM shareholder agreement will deal with partner disagreements and include majority or unanimous approval of business partners when significant decisions are being made.
A shareholder agreement can also deal with expectations and responsibilities between parties - working arrangements, areas of responsibility, hours of work, partner income and duties. If one partner has checked out or isn’t working as hard as others, or worse goes rogue and takes your money a shareholder agreement will deal with the process for keeping them accountable, resolving dispute and finally transferring under performing or rogue partners.
Should a business partner wants to sell their share without a shareholder agreement they could sell ownership of your business to someone you don’t want to do business with. A shareholder agreement can stop this by setting out the process, including who they can sell to, how to value their share fairly, whether current partners can match that offer, and whether they can sell to someone outside the business. A good shareholder agreement will also have drag along and tag along rights, which allow business partners to require other partners to sell to a third party.
When a business partner gets sick, seriously ill or passes away, a shareholder agreement will deal with how their share of the business is transferred. An OFRM shareholder agreement will require insurance so that their share can be paid for, protecting family and loved ones in unexpected circumstances.
A quality shareholder agreement is a like a good insurance policy, it protects you against risk. You could leave it to chance, or you could protect your interests. O’Farrell Robertson McMahon business lawyers Lachlan Edwards and Siobhan Liston will help you prepare a tailored shareholder agreement for your business. Contact Lachlan on 03 5445 1031, or Siobhan on 03 5445 1067.