A shareholders agreement template may look like an appealing solution. But there are a number of reasons why you should be very wary of them.
1. It feels like a solution. But it’s not.
The typical shareholders agreement template you will find (or buy) online will look and feel like a ready-to-use document. They’re often promoted as such.
The document has probably been prepared by a lawyer, and it addresses most (maybe all) of the areas that a good shareholders agreement should address.
The problem is, by definition, it hasn’t been prepared for you.
Consequently, there is a high likelihood that at least some of the document isn’t appropriate for your circumstances. You could put yourself in a worse position by using that document than by not signing anything at all.
A shareholders agreement template is the beginning of the process, not the end. Lawyers start with template documents (often several), which they then tailor (or combine) to produce something that meets the needs of their client.
The difference between a template shareholders agreement and a bespoke shareholders agreement is reflected in a big difference in price. It is also reflected in their value.
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2. It will limit your thinking.
Having access to a shareholders agreement template does two things.
First, the contents of the document will constrain your frame of reference. The starting point for thinking and discussion will be the terms of the document, rather than your particular circumstances. It should be the other way around. By focusing on the contents of the document, you run the serious risk of missing important issues that are specific to your business or industry.
Second, it is likely to make you feel that you are closer to a workable solution than you probably are. This could make you tempted to take shortcuts through the process – for example, by not taking the time to give important issues proper consideration.
There is no point in having a shareholders agreement unless it has been carefully prepared, with your input from the start. Otherwise, if it ever needs to be called upon, it may be of no value whatsoever.
3. You’re likely to skip over important detail.
Unless you’re a lawyer, you are likely to miss some of the nuances in the document.
For any given clause, there is likely to be a number of different ways of dealing with the same issue. Some will be more appropriate to your circumstances than others. (Tag and drag along provisions are a good example.)
The nature of the document is likely to create an assumption that the clause proposed is the best or only option. Often that is not the case.
4. The biggest value is in the process, not the document.
A signed agreement (of any kind) marks the end of a process. The value of the document will be a direct function of the process that preceded it.
The best process is the one that results in the parties never having to look at the document again. Specifically, the process of entering an agreement should give rise to a broad discussion of issues that are specific to the circumstances of the parties.
These discussions are invaluable – they ensure that, when an agreement is signed and the venture moves forward, everyone is on the same understanding.
A genuine ‘meeting of the minds’ between the parties should be the objective of any agreement-entering process. If you achieve that, your chances of a future dispute will be significantly reduced. Which is precisely why your focus should be on the process of preparing the agreement, rather than the final document itself.