If you are not the sole owner of your business, you should seriously consider having an agreement that governs the relationship between or among its owners, and establishes procedures to be followed in the event of unforeseen contingencies (i.e., the "stuff happens" scenario). While Shareholders' Agreements pertain to the owners of a corporation, Operating Agreements pertain to Limited Liability Companies and Partnership Agreements pertain to either General or Limited Partnerships. All of these agreements are valuable tools for businesses in which the owners are often actively involved in a company's daily affairs.
Although business owners, especially those that are friends or family, may feel such a formal agreement is unnecessary, it is always better to err on the side of caution. Unfortunately, it is always possible for relationships to deteriorate, particularly when money is involved.
These agreements are not required to be publicly filed, and therefore may be kept as a private, legally binding contract between the owners of the company. The lack of a public filing requirement also allows details of a business' operations discussed in the agreement to be kept confidential, and for the document to be relatively easily revised or amended if circumstances change. Ideally, these types of agreements should be drafted immediately after a business is formed or, in the case of a General Partnership, commences operations.
What Topics Should The Agreement Cover?
There are a variety of topics that a well-drafted agreement should address. An experienced Florida business attorney can assist company owners in crafting an agreement that meets their business' unique needs. In general, however, such agreements may include provisions dealing with the following topics:
- Financial contributions: Agreements may document initial capital contributions and plans for future financial contributions.
- Transfer or sale of ownership interests: Usually, owners are required to offer other shareholders a right of first refusal if the wish to sell their interest in the company to a non-owner. In other words, interests must be offered to fellow owners prior to selling them to individuals outside the business.
- What happens to interests if an owner passes away: For instance, the agreement may mandate that ownership interest be sold back to the business for fair-market value.
- How the value of shares is determined: In the event owners cannot agree on a value for interest that needs to be sold, the agreement may specify a method to determine the worth of interest.
- Non-competition and confidentiality provisions: For example, the agreement may specify that owners who leave the business are prohibited from opening a competing business in a certain geographic region for an established period of time. Owners who leave the company may also be prohibited from taking information like customer lists or using trade secrets to benefit their new enterprise.
- Business management: Owners may specify how control and management of the business will be handled, including how those who operate (as opposed to own) the company will be elected and voting requirements for certain matters (for example, which issues will necessitate a super-majority voting requirement).
- How disputes are handled: For example, the agreement may specify methods for dispute resolution such as arbitration, and may provide certain protections for minority owners.
Once an agreement is completed it should be kept in a safe location that is also accessible. A fireproof safe in the office of the company's attorney is a good location.
What if a Business Doesn't Have a Shareholders'/Operating/Partnership Agreement?
Although it is generally wise for businesses to have a shareholders', operating or partnership agreement, Florida law does not require them. If a business neglects to draft such an agreement, owners' rights are often governed by the default rules in Florida statutes, along with the company's formation documents. The problem with relying on default regulations is that they are often unsuitable for the needs of a particular business. This may cause business owners to result to costly litigation in order to settle shareholder disputes.
Consult With an Experienced Florida Business Attorney
A knowledgeable Florida business lawyer can assist you in developing a comprehensive agreement that meets your business' unique goals. It is also wise to periodically review your agreement with an attorney to ensure it continues to meet your company's needs as circumstances change.
