This week I touch on shareholders agreements. These are agreements that can go a long way to avoid disputes amongst business owners and should disputes arise, to resolve those disputes or provide a mechanism to do so, and failing that can provide owners with exit mechanisms.
Shareholders agreements can also deal with strategic issues, such as capital raising and management together with issues such as where the ownership of assets falls ultimately. In particular, issues such as the skills of each shareholder and jobs each of them can be required to perform in the business, minimum hours to be contributed, payment arrangements and terms for services by shareholders, ownership of assets, in particular intellectual property assets developed in the business, exit strategies for shareholders (what happens to their shares, including valuing those shares) and accompanying restrictions on competition, how the business will be funded from time to time and on decisions made in that regard, the management of the company, including who will be directors, who will have a casting vote and when, future issue of shares, taking on new shareholders, ending the business, methods for dispute resolution, choice of professional advisers.
Shareholders agreements can be a mechanism to deal with any of these potentially draining issues.
It is always easier to deal with these difficult issues at the start of a relationship or when the relationship is good and dialogue is open, than when dialogue is disintegrating.
The cost of prevention is a fraction of the costs of dealing with dispute and if done in an orderly and strategic way under a properly considered shareholders agreement, can possibly even reduce the intervention of outside parties, such as ASIC, the Courts or the ATO.