Think of a Shareholder Agreement as Preventative Medicine

You’re in the early stages of building a business. You have a partner who you’ve known for some time now and you couldn’t be more thrilled to enter into what will certainly be a mutually beneficial business relationship between the two of you.

It sounds wonderful. What could possibly go wrong?

Let the recent collapse of the renowned Heenan Blaikie law firm be a lesson to you. Even after 40 years, 500 lawyers on staff and the involvement of prominent political names including Pierre Elliott Trudeau, Jean Chretien, Pierre-Marc Johnson, Marcel Aubut and Michel Bastarache, the firm has been dissolved and it leaves behind a legal community beside itself with shock.

The “Honeymoon” Phase

Intimate relationships always have a “honeymoon” phase and business partnerships are no different. Problems have not yet risen to the surface, you cannot imagine something going awry, and you’re anxious for business operations to get underway. Why waste time and money drawing up a lengthy shareholder agreement?

Because it just may be your saving grace in the end.

Plan Ahead and Set Rules Now

The best time to handle a dispute is before it happens in the first place. Calmness and rationality don’t tend to be our strongest suits in the midst of adversity. On the other hand, if you and your business partner discuss, identify and define specific rules in writing, if and when disputes arise in the future, their resolution will be fair, timely and straightforward.

For example:

  • How will the business operate?
  • How will responsibilities be divided among you?
  • If death should occur, what happens to the business and the living partner?
  • If one of you should become disabled, how will the business proceed?
  • What will happen if the business becomes short cashed?
  • How much money can one partner invest into the business without informing the other?
  • Who signs for cheques?  One of you?  Both of you?

Preventative is Better than Reactive

It is difficult to act in a fair and equitable manner when you are frustrated and angry. A high stress environment is the perfect foundation for irrational behaviour that may prove detrimental to the health of your business relationship.

By taking a realistic approach to business partnerships, you come to terms with the fact that there are bound to be differences and disagreements between you – it’s how they’re handled that matters. Right from the get-go, arrange a meeting, speak candidly and pragmatically and draft a shareholder agreement that you’re both comfortable with. Not only does a shareholder agreement protect your best interests in the long run, but it also establishes an honest, clear and equitable business relationship between you and your partner.

A good advisor acts as the facilitator of a discussion that allows you to speak openly on issues you otherwise would have avoided.

“Can I Negotiate My Lease?”

There is a simple answer to this question, which was asked by one of our followers last month.


The problem is, far too many business owners don’t know or don’t understand that they do, in fact, have the power to negotiate. In other cases, they may be aware of their rights but they simply don’t know how to properly exercise them.

You Do Have a Choice

There is a shocking trend we see in our line of work: landlords adopting the position of “take it or leave it” when it comes to lease agreements. In such cases, tenants often sign even though it isn’t in their best interests to do so. Why? Location dependency, hasty decision making, fear of losing what they think is the perfect property, and missing or misunderstanding the provisions in the agreement are all common reasons. But that doesn’t mean they’re good reasons.

Think About the Future

It’s easy to sign quickly, particularly if the terms do not immediately affect you. For example, it is stated that rent can increase upon renewal but there is no mention of fair market value. There are termination or demolition provisions, but you can’t foresee the landlord demolishing the building anytime soon. There is a clause that states the landlord can relocate you elsewhere in the plaza with no indication of whether or not the new rent will be based on the same rate per square foot.

New business owners often place too much weight on the price per square foot. But there is much more to it than that. What is the lifetime value of your lease? Although price may be important in the first few years, think about how that might change in five years, ten years or even fifteen years. As your business and your profits grow, your focus may be less on the square foot price and more on the points mentioned above.

And then the key question becomes: did you do enough to protect yourself at the time of signing?

Create a Venue to Discuss

This is exactly what a competent lawyer does. They open the conversation and facilitate the back and forth movement of communication that ultimately results in a fair lease agreement. A good lawyer understands your business, knows your budget, acknowledges your future goals and respects your current position. They’re able to pinpoint problems and prompt you to think about the repercussions of what you’re signing.

We often say, “there’s no such thing as a perfect lease”, but with a good lawyer by your side, you can negotiate, you know exactly what you’re signing, and you make an informed decision that reflects your best interests.

Caveat Emptor. Always.

You’re about to enter into a new agreement. If you’re like most people, you do not have the knowledge to comprehend every provision nor the skill to ascertain whether or not the specified terms are in your best interests. And so this raises the following questions: have you done your due diligence? Have you considered all possible scenarios? Have you exercised your right to fully understand what you’re getting into?

This is caveat emptor.

Let the Buyer Beware

Caveat emptor is Latin for “let the buyer beware”. You probably already knew that. But what does this really mean? Simply put, this famed phrase means that it’s up to you to make an informed and educated decision about whether to buy or sign. When the deal is done and you’re left to face an unfavourable outcome, placing blame on the other party won’t get you very far in a court of law.

Is the notion of caveat emptor just? Our legal system certainly thinks so.

You’re in the Driver’s Seat

You have all the power in the world before you sign. But if you sign and commit yourself to a deal without fully comprehending the terms ahead of time, the courts show little mercy after the fact.

You do have the power not to sign.

You do have the power to negotiate.

You do have the power to hire competent legal counsel to protect yourself.

Whether you’re an experienced businessperson entering yet another corporate agreement, a first-time property buyer or a commercial tenant about to sign a new lease, the services of a legal professional are invaluable.

Mitigating Risk

If you’re buying a business, have you confirmed the number of customers?  Has the vendor been accessible and cooperative? Is there an excuse every time you dig for answers? You might be surprised to know how many executives and business owners sign contracts without careful review. When a final closing is imminent, it’s easy to assume that the agreement must be equitable to both parties. Think again.

Lacking any real legal expertise, it is unlikely that you have the ability to identify adverse conditions within an agreement, or more importantly, to recognize missing conditions whose inclusion is absolutely necessary.

But a lawyer does.