The below are just some of the essential issues which should be dealt with in a shareholder’s agreement.
1. Business Objectives
2. Company Goals
3. Ownership Structure
4. Rights and Responsibilities
5. Shares and Equity
6. Voting Rights
7. Vesting Schedule
8. Intellectual Property
10. Dispute Resolution
11. Salary and Compensation
12. Non-compete Clause, if applicable
13. Exit Provision
Ideally, the co-founders must think through any potential problems that they or the business might face and brainstorm solutions to avoid issues down the road.
The most common problems occur when adding directors and shareholders. This is where the most thought is required.
So why do many businesses flame out?
8 out of 10 cases I have consulted on are mostly commercial disputes caused by the fact that;
1. there was no shareholder’s agreement;
2. there was one but it was not updated as the business and relationships evolved; or
3. there was one but one or more of the parties who signed it blindly and found themselves held at gunpoint when it came to a legal dispute.
While you can’t predict every conceivable outcome, there needs to be some deep thinking and frank discussion on how each founder sees things playing out during the course of running the business. This should be updated regularly as the company grows.
If you are taking the time to draft a shareholder’s agreement, follow through on your approach entirely. Contract writing with startup lawyers is more affordable than you think. Once you have obtained the final copy of your agreement, you will have reassurance in knowing that your co-founders are just as serious as you are when it comes to the vision.
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