Going into business with someone is just like a marriage. It’s helpful to agree on stuff up front. Finding out 6 weeks in that your wife doesn’t want kids - problematic.
Going into business with someone is just like a marriage. It’s helpful to agree on stuff up front. Finding out 6 weeks in that your wife doesn’t want kids - problematic. When she invites her mother to stay 3 months without checking first – not ideal.
It’s no different when you want to go into business with someone.
Many people enter into business arrangements best of friends – unfortunately it doesn’t always stay that way. This is where a good shareholders agreement comes in.
The shareholders agreement covers all those things like – when do I get to take money out of the company, who gets the company car (or do we each get one), when can I buy more shares, who can I sell my shares to, how do we agree on what the shares are worth etc. There are a lot of factors to think about. An agreement can be lengthy, however it’s there for all shareholders protection.
It’s best to think about what could be a source of conflict and attempt to find a solution ahead of time. i.e. if one shareholder is in a different financial position to another then this could be a point of stress. A solution could be to clearly state a minimum level of dividends to be paid annually.
Sometimes I meet people who want to bring on a 50/50 partner. My first piece of advice in most cases is "don’t". Why would you do that to yourself? How many successful businesses do you know that have two bosses? I can’t think of any. Think hard why it needs to be 50/50 before you do it – 51/49 might still be just as effective but it guarantees clear direction.
Of course, there are many reasons to bring in an outside shareholder. Maybe the business is growing, and you need more capital. Or you might want to offer a few shares to a young staff member to engage and retain them. Sometimes an outsider is worth bringing in for new ideas and direction. All are worthy reasons, just protect yourself and the business before you offer a share of the pie.
When talking shareholder agreements my preference is for a three way. Not like that - what I mean is that we get the client, the accountant and the lawyer in the same room. We hash out the key parts of the agreement then and there. This helps make sure all the issues are dealt with efficiently.
Please folks, think before you commit. A good shareholders agreement is the best step towards domestic bliss in your business.