Why you need a shareholder agreement (even if you think you don’t).
At the beginning of an agreement between founder shareholders, it can be common for opinions to be divided as to how best spend the often meagre amount of cash available. There are lots of things that cost money at this stage and it can be tempting to ignore the less-than-sexy things like agreements, contracts and other paperwork designed to help if things don’t go as planned.
During this honeymoon period, some would view asking your fellow founders to sign a shareholder agreement as potentially divisive. No one wants to upset their colleagues with something that could be interpreted as something that says ‘I don’t trust you!’
At Devant, we’ve seen many good natured business ventures between old friends or colleagues go south because a lack of firm understanding in writing at the beginning of it all. Often, if the business does well, opinions can be divided and memories can get a bit foggy when it comes to deciding exactly who contributed what and when. Of course, emotions and egos play a part and particularly when larger sums of money are involved.
A good shareholder agreement is a bit like organising an optional insurance policy in some other area of your business. You hope you’ll never need it but if the time come that you do – you’ll want to be confident that it covers all important eventualities.
Shareholder agreements are something we’ve had a lot of experience with here at Devant and we have endless stories about companies that had the wisdom to prioritise these basic agreements a the beginning of their business venture.
Unfortunately we’ve also amassed more than a few stories about companies that have decided that a handshake and a shared past would be sufficient to resolve any disputes amongst the founder members.
Additionally we’ve found that a good agreement, tailored to your business type builds trust amongst your shareholders and can actually smooth your relationships as the business grows.