In the world of business, if marriage vows stand for verbal contracts, a Shareholder or Shareholders' Agreement (depending on jurisdiction) (“SA”) is the prenuptial agreement that no couple - or in this case, partners - should overlook. It’s a silent, yet formidable, guardian that ensures the romance of entrepreneurship doesn’t lead to a messy breakup. While you don’t get married anticipating divorce, marriage involves love. Business partnerships are, however, different and require an alternative expression of endearment which is best shown through signing that business prenuptial agreement/SA.
When might you need this 'prenup'?
Imagine embarking on a new partnership, teeming with promise and enthusiasm. But as in marriages, the honeymoon phase of a business can wane. A SA is a sturdy bridge that keeps the partnership solid when the waters below get turbulent.
Or picture your business expanding, brimming with growth and opportunities. But more often than not, growth can birth diverging visions. What direction should the company take? Who leads the charge? The prenup ensures everyone dances to the same tune.
Then there’s the potential exit. Much like the discussions around who gets the house or the family pet in personal relationships, a stake sale or merger in the business world needs clarity. How do shares transfer? What's their worth? The agreement ensures no bitter aftertaste when parting ways.
Key Clauses: The Vows of Business
Rights & responsibilities of shareholders – this is the heartbeat of your SA. It spells out entitlements, from dividends to voting rights, and ensures every shareholder sings from the same hymn sheet.
Company management – here, governance takes centre stage. It’s not just about who holds the power but also how disagreements - those little spats that can escalate - are amicably resolved.
Share transfer rules – akin to deciding who gets the family heirlooms, this clause ensures that if a shareholder wishes to exit, the process is transparent and fair to all.
Drag and tag-along rights – this is about ensuring harmony in transitions, making sure no shareholder feels they’ve drawn the short straw during a sale. A drag-along right allows a majority shareholder to drag along minority shareholders in the event of a sale. Conversely, a tag-along right allows minority shareholders to tag along with majority shareholders in the event of a sale.
Scenario planning – life is unpredictable. What happens if a shareholder is suddenly unable to perform their role? This is the clause that ensures business continuity without sentimental hiccups.
Non-compete & non-solicitation – just as past partners shouldn’t meddle in each other's futures, this clause ensures shareholders respect boundaries post-exit.
Navigating the Bumps
Every relationship, even the commercial ones, have their pitfalls. Overlooking future scenarios can blindside the business. Being too verbose can blur clarity, and failing to regularly update the agreement? That’s akin to forgetting anniversaries. Regular 'relationship check-ins' ensure that the agreement evolves with the business.
Just as a well-drafted prenup can save personal relationships from turning sour, a comprehensive SA can be the saving grace for business partnerships. It’s always wise to get this right, and that often means seeking expert guidance. Benchmark International stands ready to help craft this vital document for your business journey. Let’s ensure that your business romance stands the test of time.
T: +27 (0) 21 300 2055
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Lawrie@BenchmarkIntl.com
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL:
Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $10 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook’s Global League Tables.