Why Do I Need a Shareholder's Agreement Terms Sheet?
Updated: May 24
It’s common for first-time entrepreneurs to start their businesses with partners. Sometimes it’s to divide major roles, and sometimes because the idea is a collaborative effort. Whether you’re working with a colleague or a close friend, you need to get certain things straight. A shareholder’s agreement terms sheet is common for these types of collaborations.
What is a Shareholder’s Agreement Terms Sheet?
Just as the name suggests, this type of agreement states the terms and conditions of the partnership between one or more individuals who share a business. It is basically what everyone agreed upon beforehand documented into one sheet. Verbal agreements aren’t always considered legitimate, so to get things straight right away, it’s better to have it all on paper and signed.
What is supposed to be in the Arrangement?
There is no golden standard for a shareholder’s agreement terms sheet because not all of them contain the same terms. There are also industry-specific requirements that need to be addressed. However, there are templates that can provide the basis of your sheet.
The document has to be transparent–which means you shouldn’t be pulling the “read the fine print” trick. Everyone involved should understand what it says, so it should keep the jargon at a minimum. Even if you’re working in a highly technical industry, every person in the team should understand it.
You should be able to understand and locate the following information in your sheet:
Rules and regulations of the agreement
What would happen in the event of unexpected occurrences?
How much you are allowed to contribute and how much you can receive.
What happens when someone violates the rules.
If your partner or a legal representative wrote it, then make sure to read and review all of it. Make sure that you find everything listed above and that everyone agrees to everything before signing. You’d be surprised how many people sign things without even reading.
Is it Necessary for All Businesses?
No matter the relationship you have with the people you choose to conduct business with, you need to protect yourself. They need the concrete protection of the terms sheet as well. It’s not a matter of whether or not you trust each other fully. It’s just business. Things have to be defined, and everything has to be fair among all of you.
Make sure that you include things that are only certain and are set in stone. You can’t sign a document if there was a verbal agreement made after-the-fact. If there are any revisions, settle them on paper. That way, if there will ever be a time that something goes wrong, any of you can use it to set the record straight.
Co-owning a business with someone you trust and value is an excellent step towards a more fruitful career. And while you might have faith in each other, things still have to be made clear in your terms of the agreement. Everything has to be documented, not just for the sake of formality but also for the continued stability of your relationships. Starting a business can be exciting, but these things need to be treated seriously.
Creating a legal document regarding business and finance needs a second opinion from both lawyers and finance experts. If you are ever in need of an accountant in Gold Coast for accounting advice, even full-service accounting, and end-to-end bookkeeping, consult New Wave Accounting. We are an accounting service for small businesses. We help enterprises scale their operations. Contact us now!