Partnership/shareholder agreement checklist

Things to consider for your partnership/shareholder agreement:

  1. For the day-to-day operation of the company what kind of limits will you have on discretionary spending?
  2. What should your Board of Directors look like? Who controls it? What decisions (if any) require unanimity?
  3. Are the shareholders required to spend their full-time attention on company matters? And what if they can’t (injury or illness or economic necessity)?
  4. What is required, and how will the decision be made, if you want to do a major refinance or sell the business?
  5. Will the majority shareholder have “drag along” rights to force the minority shareholders to join in on the sale of the business, and will the minority be allowed to “tag along” if the majority sells out?
  6. Will the shareholders be required to provide their personal guarantee if the company borrows money?
  7. Do you want a protective clause which would throw a roadblock in the way of a creditor (including a departing spouse) trying to seize and sell shares (by devaluing the shares and/or providing that they may be purchased over an extended period of time by the other shareholders)?
  8. Will shareholders’ loans bear interest and will they be secured?
  9. What happens if there is a cash call and some shareholders are unable or unwilling to contribute their share?
  10. What about a buyout if one of you becomes disabled?
  11. Most agreements make provisions for the orderly purchase of a deceased shareholder’s shares from his/her estate; will you, or can you, use a life insurance to fund the buyout of a deceased shareholder?
  12. Most agreements provide that you have to offer your shares to the existing shareholders before selling them to an outsider. Do you want this provision?
  13. Do you want a “shotgun clause”? (This is a provision wherein any offer you make to another shareholder to buy their shares could be turned around and used against you and you could be required to sell your shares on the same terms as your offer.)
  14. What about non-competition, in the event one of you leaves, or is forced out?


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