Shareholders’ agreements (or their limited liability equivalents, operating agreements) will remain essential and timely as long as multiple owner corporations continue to exist. Here is a video I made a few years ago regarding the importance of shareholders’ agreements. I thought it appropriate to pull it out again in order to stress, once again, the importance of determining, in advance, how you work with multiple co-founders or with investors you bring in at a later date.
Would you be resentful?
What would happen if you repeatedly disagreed with the other shareholder(s) and no definitive action was ever taken to resolve the disagreement? What if you believed you were repeatedly overrun or, conversely, had to be the one making all the major decisions? Would you be resentful? From my experience – and the experience of many others who have worked with multiple owners/co-founders/investors – resentment that is never addressed ultimately results in the demise of the company, the relationships, or both. A thorough shareholder’s agreement (and perhaps a buy/sell agreement) could have prevented this!
Would you like to have someone’s spouse or child take over?
What happens if your co-founder/co-owner has a heart attack or gets into a car wreck and dies? What if he or she is suddenly permanently disabled and unable to attend to the business? If you never legally addressed this scenario, you may have keyman insurance, but that does not protect you from the person who now has ownership or control of those shares. If the spouse or child is business savvy and a great asset, you’re all set. If not? You’re potentially in serious trouble. Again, a thorough shareholder’s agreement (or buy / sell agreement) could have prevented this.
Want more scenarios regarding why a shareholders’ agreement makes superb business sense? Watch the video!
I’d love to hear your stories regarding how a shareholders’ agreement worked for you. Or how not having one worked against you. Please comment below.