Streetwise Incorporating Your Business by Michele Cagan

Author:Michele Cagan [Cagan, Michele]
Language: eng
Format: epub
ISBN: 978-1-4405-1676-4
Publisher: F+W Media
Published: 2007-01-15T00:00:00+00:00

In the Absence of an Agreement

When there is no shareholders’ agreement in effect, state law dictates how issues will be decided. The default rules may not be in your best interests. In fact, some issues important to you may not be covered by statute at all, and in those cases it’s every shareholder for himself. For example, many states impose no statutory restrictions on transfers of ownership interests, and that can pose a lot of problems for small-business owners (as you saw earlier in this chapter).

Should the solution to a dispute not be found within state statute, co-owners may be left with no choice but to pursue outside intervention. That can be both costly and divisive and may lead to the dissolution of your corporation. Court costs can add up rather quickly, and court proceedings can suck up a lot of time. Both of these conditions can spell death for your company, as its owners will be forced to spend their time, attention and resources in the legal system rather than on their corporation (where it’s probably desperately needed). However, with a thorough shareholders’ agreement in place, issues can be resolved before they ever come up. Plus, in instances where there is no preplanned resolution, the agreement can point you toward mediation or arbitration, both of which are less costly and less conflict-ridden than a full-fledged court battle.

Disagreements aren’t the only items normally covered in a shareholders’ agreement. A comprehensive document sets forth individual rights and responsibilities and details ongoing corporate maintenance tasks.

Without an agreement to refer to, formalities may be overlooked, and that could lead to loss of limited liability protection.

TEST DRIVE

Gather your thoughts about what should be included in your shareholders’ agreement before you talk to your co-owners or to the corporate attorney. This way, you won’t be distracted by other people’s comments, and you’ll make sure that issues that concern you are adequately addressed. Use these questions to help figure out which items matter to you most:

Are any of the shareholders married, or likely to get married in the near future?

Are all shareholders personally financially stable?

Would you like to bring in additional equity investors (family members, employees)?

Will all shareholders contribute roughly equally to the daily management of the corporation?

Do you want to allow shareholder loans to and from the corporation?

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