Why is it important to have a Shareholders Agreement?
Here’s the scenario: you are a startup or an early stage business. You’ve created a great service concept, app, product.
With a bunch of mates you’re flying off the seat of your pants, and therefore, rising to the top of your to-do list is probably not “need to sort out our legal documents”.
There is one document which I would suggest you should seriously consider getting in place and getting drafted properly, and that’s the shareholders agreement.
Think of it as an insurance policy that you invest a little time and money in now protects you against unforeseen circumstances that may emerge in the future.
Number of reasons why it’s very sensible to have one in place. It gives the shareholders greater protection, particularly for minority shareholders. It gives you a procedure for important decision making.
The one area I would like to focus on is that it gives you a framework and a procedure for future disputes should they emerge. Why will that they? You’re all mates at this stage, but that can change.
One area where you should consider seriously having some documentation in place is the issue of valuation, particularly if a shareholder wants to leave. Maybe they’ve had a change of personal circumstances and they need to extract themselves from the business.
If you haven’t documented exactly the mechanism for the valuation of that business, you can create a whole ball of trouble. Because there’s many ways to skin the cat, particularly of a early stage business, in terms of valuation. If you haven’t got it documented, it really could be a very sticky area of dispute.
For that and many other reasons, a shareholders agreement is a pretty sensible document to knock into shape.
Do you already have a Shareholders Agreement?
Then get in touch with Linkilaw today and we’ll get you a bespoke shareholders agreement that protects your business and your interests as a key shareholder.