Shareholder agreement

[Sebzon]

Hello everyone!

I am at the very early stages of the CC that I have started with a friend of mine. With the minimum finance available one would like to reduce costs as much as possible.

We would like to have the shareholder agreement that will incorporate exit mechanism, selling of shares, members rights etc. but its just that I have not seen any of agreement of this nature to start with. Also if we have pesonally drafted it do we really need a lawyer or law firm to validate it?

I would be glad to hear from you!

[Marq]

You could draft one up between you, but if this gets into a serious business with serious money and you have intentions of getting it there, then I would advise you do it right with proper legal advice and recording of agreement

[tec0]

I agree with Marq on this one. Get it right from the word "go" and you will have no regrets later on.

[Sebzon]

So how different will it be if we drafted ourselves and the one with the legal advice and recording of the agreement? The one we drafted ourselves without recording will it not be legit when we get into the court cases for instance?

[Marq]

All signed business agreements of good intention are probably legit and can be taken into account should a case come up.
The point here was that you get it right and ensure that it covers all the angles to avoid situations which you may not envisage now. You may also find that the what you draft now without legal help is chucked out of court because some obvious clauses are missing. Who knows?

Nothing is stopping you going ahead with what you have in mind with or without a lawyer. We were just pointing out a potential pitfall that seems to get in the way just about every time two friend go into business.

[Sebzon]

I do understand I think we will have to get the legal advice on drafting our agreement. Because its true we might omit some of the most important clauses.

[Dave A]

I'd at least start with a generic template job.

I've seen Legalwrite on sale at Makro (check in the IT section) and it's probably available elsewhere too. I've read their partnership template and it covered the bases pretty well. Don't be fooled by the "partnership" bit, it's applicable. You should have a partnership agreement over and above the founding statement (in the case of a CC) or Articles of Incorporation (Pty Ltd company).

CNA used to have some generic contract type stuff too.

[RogerH]

Hi, what is vital to remember is that the NEW COMPANIES ACT is being implemented during 2010 - this will effectively treat cc's like companies into the future. Another concern I have is more technical - remember that in a cc you own a members interest (NOT SHARES) - this is reflected as a percentage of the entity. In a company you therefore have a shareholders agreement, but not in a cc where everything is based on the Founding Statement and Agreement.

Under the New Companies Act the formation of companies is also being simplified and changed quite substantially. A company will be formed by filing a Memorandum of Incorporation (or MOI) that is pretty much the "constitution" of your company and very flexible - the importance of the MOI is that all SHAREHOLDERS agreements need to be consistent with the MOI, it is the foundation on which they are based and will ensure consistency between different shareholders agreements.

Too often I have seen that, over time, as companies grow and bring in additional shareholders the agreements they sign are not consistent and they are all effectively agreeing to different sets of "rules" around how the company should work...

I think that ultimately it would be far better to actually put any new business in a company (and not a cc)... In fact the intention of the New Companies Act is to do away with cc's over time. They will still exist but no new cc's will be registered.

I know that this is probably introducing some additional complexities but the environment we currently operate in is changing RAPIDLY!! You are welcome to contact me directly... roger@sinkorswim.co.za...

PS I do agree wholeheartedly with the comment about getting everything agreed to ON PAPER - paper protects people...

[sheben]

Hello everyone

I am starting a recruitment company and I found all the above very helpful. I will make sure that we first sign all the appropriate documents before we open shop.
Thanks again