So you have decided to start a new business? You have a novel idea or a better way of doing things? What’s next?
Starting a new business can be daunting, but with good planning and the help of experienced advisors, success is just around the corner. In this guide, our business advisory director, Nadia Sabaini, gives her top 10 actions to consider for Start Ups embarking on a new business journey to maximise their chances of success and avoid legal hardships.
#4: Signing a shareholders agreement
Disputes between business partners can arise at any time for any reason and can be crippling to a business.
Once a structure is established, and particularly if it involves more than one business partner, it is imperative that a comprehensive governing document is put in place.
Most structures involving multiple partners will have a base governing document such as a partnership agreement, company constitution or trust deed. However, in some cases, this document may be a standard form document not intended to cover all that is necessary and may contain terms that are actually contrary to what you require. There is therefore a second step necessary, which is to obtain legal advice on the terms of the governing document and have an additional governing agreement or a variation prepared if necessary.
Companies, for example, should have a shareholders agreement in addition to their constitution. The shareholders agreement supplements the constitution by addressing matters not commonly addressed in a constitution, such as:
- types of decisions requiring special majority resolution or unanimous resolution; and
- good leaver and bad leaver provisions including buyout rights.
The shareholders agreement may also vary certain parts of the constitution such as how directors may be appointed or removed, which is usually of key importance to emerging businesses.
All companies including those with only two shareholders should still have a shareholders agreement in place. It forces the shareholders to discuss and agree on how they will run their business and plan for all likely and unlikely events, such as illness or an unexpected desire to retire, providing for transition arrangements and an agreed process for dealing with disputes, which may include forced buyout provisions. In the absence of buyout provisions, buyouts may not be enforceable and the only remedy may be liquidation of the company.
Many of the disputes we routinely see in corporate businesses, including family companies, could have been avoided, or at least better resolved, if a shareholders agreement was in place.
For more information regarding your start-up journey, download the full guide below or contact us today.
What’s next? #5: Registering Your Intellectual Property
Read from the beginning: #1: How to Make a Real Business Plan for Your Start Up
This guide is provided by way of general assistance only and for marketing purposes. Please contact us to discuss your personal situation and further information you may need.
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