Shareholder, LLC & Partnership Agreements

As important as proper entity formation, agreements between the founders, and between the company and any financing parties, are crucial to the successful establishment of a new business.

For existing entities, a careful review of these inter-owner agreements can help reduce friction between owners and keep the inter-owner relationships clear and up to date; and many businesses require additional financing through bank loans, venture partners or other arrangements to expand and grow.

Countless clients have come to us asking for advice with working relationships where the agreements between founders or owners were non-existent or contained unacceptable, incomplete or unfair provisions. This can dramatically affect the options available to the parties, and can frequently lead to a founder receiving less than full value for his or her interest in the company, as well as animosity between friends and business partners. Owners who have carefully crafted operational documents from the outset, where various future scenarios are anticipated, can save considerable time, expense, aggravation and even litigation when it is time for the relationship to evolve or end.

Typically, inter-owner agreements (a Shareholder Agreement for a corporation; an Operating Agreement for a limited liability company; and a Partnership Agreement for a general or limited partnership) address the following areas:

  • Capital contributions of the founders, whether in cash, property or services.
  • Ownership interests and, if different, voting interests.
  • Voting rights on various issues (majority vote, supermajority vote, unanimous vote), along with the terms of any voting agreements.
  • Management and employment rights and responsibilities (Employment Agreements are usually set forth in a separate document).
  • Restrictions on the sale of an ownership interest.
  • Rights of first refusal on sale of an ownership interest.
  • Events that trigger certain rights, such as death, disability or some other change in status of an owner.
  • Non-competition provisions.
  • Any other matters of importance between the owners.

In addition, if third-party financing is being used at any stage of the business, there will be loan agreements, promissory notes and security instruments that are needed. In many financings, there are also preferred stock (or their equivalent in other entities) agreements and, for companies with public market aspirations, conversion rights and management oversight and restrictions.

Mr. Mahler has drafted, reviewed and, where appropriate, negotiated agreements between owners, and agreements between companies and banks, venture capital and other financing sources, throughout his career, including initial, angel round and mezzanine level financing and related agreements. His experience allows our firm to effectively counsel clients on what elements are important, what arrangements work and which have potential problems, and what terms the owners must have in order to maintain control over their business and realize their vision for success.

For more information on how Mr. Mahler can assist you, please contact our firm today.

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