Shareholder Agreements Paul A. Tonella

 Value Balancing  existing owners  departing owner (or their estate) Enhancing Value  Joint Investments  companies  partnerships  trusts  jointly owned assets

Planning Continuum Today Voluntary Exit Involuntary Exit Business Succession PlanningEstate Planning

 I didn’t mean to…  death  disability Choices  Okay, maybe I did…  retirement  termination  dispute

 Realizing Value Objectives

 Selecting Your Partners Objectives

 Achieving “Clean Exit” Objectives

Conflict between surviving owners & family Concerns of employees & creditors Lack of Market Lack of income for family Valuation difficulties Surviving owners may be forced to buy via installment sale unless funded with insurance Pitfalls

 A contract executed between members of a company and the company What  Supplements statutory protections

 Entry and Exit of Owner Group Critical Provisions

 Defines Commitment to Business Critical Provisions

 Address Decision Making Critical Provisions

 Restrains trade and protects intellectual property Critical Provisions

 Resolves Disputes Critical Provisions

 Ability to ‘veto’ decisions  Right to act as director  Dividend policies  Reporting obligations  Salary policies Bonus Round!

 Book Value Value

 Fair Market Value Value

 Formula Valuation Value

 Arbitration  “Forced Sale” Clause Dispute Resolution

“Forced Sale” Clause

 Three equal shareholders, equal contributions  Each shareholder actively involved in business  Personal guarantees  No shareholders agreement  Dispute over internal business processes It’s Fightin’ Time!

 A and B Unhappy with C and Sacked him as Director  A and B Increased their Wages  No Dividends Paid  Problems for C  Personal guarantee  No director’s salary  No information  Reliant on litigation (oppression)  Unable to sell Outcome

Contact Details Presenter - Paul A. Tonella