Now the first disclaimer, I'm not a lawyer and this is not legal advice, so if you're looking at a shareholders agreement I'd suggest you go and chat with your lawyer and your accountant. But I have looked at numerous shareholders agreements over the years and I just want to give you some practical thoughts that you can potentially apply to your business and your business relationships.
The first one is who should have a shareholders agreement? In my view if you're in business with someone that is not your spouse or not your life partner, for instance a couple of business partners working together, then you need to have a shareholders agreement in place. Obviously there's a cost associated with that and the question really is, do we need it now or should we get it done at a later stage? In an ideal world I'd suggest getting it done sooner rather than later, but I do understand in the early stages around cash flow that can be another cost that you haven't budgeted for. But definitely, as your business gains more value, I'd be suggesting you need to have that shareholders agreement in place.
The next question is quite often what do we need in it? Well I would suggest you let your lawyer think about all the legal side of things – they can come back to you with all the information you need to be in there. So sit down with your business partner and work out what I call those non-negotiables. What are the rules of engagement, what do we want to achieve, what don't we want in this relationship, what's important to us? Then go back and have that conversation with your lawyer and get them to craft that into the document. But don't try and be too prescriptive, I quite often see agreements that are very prescriptive and they really bind things together, probably a little bit too tightly.
The next thing I'd say is it needs to be fair for all parties. I saw an agreement the other day and in my view it had been written in favor of one of the shareholders and directors as opposed to one of the others. Now I understand that both parties take advice and at the end of the day you know you can negotiate terms, but I do think if you want your business relationship to be sound, your shareholders agreement should be fair.
The next point is make sure you sign it. Quite often I'll ask for a copy of the shareholders agreement when I start working with a business. I may get something that is unsigned, I may get an email back that says well do you know what, we never actually even got to that final draft, so if it's important now, carry through and get the documentation done, get it signed and then you know that it's in place.
And the last point I'd make is just be clear on what the responsibilities are and what hats you wear at the time. Because you can wear a shareholder's hat, you can wear a director's hat and you can wear an employee hat. You might wear all three of those hats. You might only wear one of those hats.
My view in relation to shareholders and directors, and especially non-executive directors that are not involved in the day-to-day side of the business, is that they are there to help guide and direct the business. So eyes in but hands out.
Let the managing director or key staff actually run the business. Some organisations will actually put a board charter in place that says this is the relationship between us as directors and the managing director that's going to run the business on a day-to-day basis. For family businesses, and especially inter-generational businesses, will quite often will put a family charter in place, which again outlines all the responsibilities and all the different aspects of the relationship.
So if you're in business with somebody else and you haven't got a shareholders agreement in place I'd suggest go and have a chat with your lawyer or your accountant or you can give me a call on the first instance.
If you do have a shareholders agreement please make sure it's signed. So i hope you took some value out of that and thanks for watching. Until next time, ka kite.
For more about making your business a success, give me a call on 021 748 142 or flick an email to john@planaconsulting.co.nz
