It is surprising how often we see in our law practice successful business owners who either have no agreement in place with their business’ co-owners, or their written agreement is legally insufficient.
While the specific type of ownership agreement differs depending on the type of company, ensuring an adequate agreement is in place protects both the business owners and the business itself.
In a nutshell, an “Ownership Agreement” is an agreement among the company and the company owners that, among other things, establishes clear protocols as it relates to the continued ownership and management of a company, restrictions on who can be an owner in that company as well as when and how owners can transfer or otherwise assign their ownership interests to others.
Here are five major reasons your company needs this agreement:
– 1. To provide clear terms of management and control of the company, helping to prevent misunderstandings between owners and defaulting to state law in the case of a dispute;
– 2. To make sure ownership of the company remains in select hands, preventing an owner who leaves the company from selling their shares to an unknown outside party;
– 3. To account for unplanned contingencies and/or life events among the owners, such as death, disability or conviction of a crime;
– 4. To prepare exit strategies if an owner wants to quit, retire, etc.; and
– 5. To establish the “value” of the company, such as establishing a “fair value” or “agreed value” set by the owners based on an appraisal process or formula.
An Ownership Agreement can allow a company and its owners flexibility to craft terms and conditions of ownership that are based on what is mutually acceptable to all parties involved. The above issues are simply important factors to keep in mind as to why the Ownership Agreement should be considered.
As with any important contract that affects a party’s rights and proprietary interests, legal and tax counsel should be consulted before any such agreements are signed.
Poole & Shaffery, LLP is a full-service law firm in Santa Clarita comprised of experienced business attorneys who specialize in business transactions, business litigation, employment counseling, employment litigation, transportation and a variety of other legal services. Those in need of a business attorney or lawyer in Santa Clarita can expect the personal, hands-on attention customary of a small firm and the extensive professional resources typically found at a larger firm.
Lisa Odom is an attorney at Poole & Shaffery, LLP.