Corporate Love: Why a USA is a Prenuptial Agreement for Business Breakups
At Mullen & Company we have written Unanimous Shareholder Agreements for corporations of all shapes and sizes. The earlier in your corporation’s life that you write your USA, the better. Come see us in our Calgary, Alberta office. Call us at 403-271-9710 or email firstname.lastname@example.org and we will put together a shareholder agreement that will allow you to focus on running your business.
According to a popular song, “Breaking up is hard to do.” And breakups aren’t just limited to romances. For many of the same reasons a personal relationship may hit the rocks, a business relationship can also be subject to unforeseen circumstances. That’s why it’s important to have a shareholders’ agreement within your corporate structure to protect other invested members and, ultimately, the corporation itself.
Like other relationships, a working relationship may dissolve due to death, dishonesty, failure to perform, unethical behavior or personal differences. Yet, there are more practical reasons why an individual may want or need to leave a business relationship as well. Career changes, spouses finding new employment, other unforeseen investment opportunities and/or difficulties are just a few of the possibilities that make it wise to prepare for the post-honeymoon phase of your business.
Begin with a unanimous shareholder agreement (USA)
The more you can define in the beginning stages of an Alberta corporation, the less things there are to determine and argue about in the future. A Unanimous Shareholder Agreement or USA
governs what people can do in the corporation. The authors of the USA decide what will happen if things don’t work out, if somebody dies, or if you simply discover you can’t stand working together. Going further, it can dictate who has the right to determine how to “divorce” your other shareholder or even how to divorce yourself from the company.
Know your options
Adding to the complexity of crafting a bullet-proof USA, there are many agreements you can include such as “Buy/Sell Agreements”. Amongst other provisions, these may provide direction on right of first refusal for sales of shares (giving specific shareholders favoured or equal opportunity to purchase against a 3rd party offer) or include a “shotgun clause” that offers a mechanism for an aggressive purchase offer from a shareholder. Buy/sell agreements might also include stipulations that the company hold life insurance on key shareholders so that in the event of death there are funds available to purchase the deceased shareholder’s equity.
Read The fine print, and ask your lawyer to do so as well
A USA can solve a lot of problems in the future by pre-determining what will happen in the case of future events. Discuss with a lawyer if you need a USA and if so, how to structure it so that you are best protected as a shareholder and a corporation.
This blog is presented for information purposes only. Setting up a corporation is a complex legal activity and the points presented here should not be considered as legal advice.