Shareholder Agreements - Do You Have One?

I recently read the following blog entry from Open Forum Blogs. It was a great reminder of why you need to have an up to date shareholders agreement and things that should be included in your agreement. I think this is a great summary of goals and necessities of a good shareholders agreement. If you have a business that is not a corporation the concepts still apply and can be included in partnership agreements and operating agreements.

Shareholder’s Agreement: What It Is and Why You Need to Review Your Own Nora Dunn for Wisebread June 29th, 2009 - 03:11 PM When you get into business with a partner or partners (be they a friend, family member, or simply a business acquaintance), you do so with the best of intentions. As such, in many cases, the apparent need for a Shareholder’s Agreement goes unnoticed. In fact, you may be embarrassed to bring up the idea since it seems like a complicated legal mess that screams of a business version of a “pre-nup”: something that protects your interests if the business relationship goes belly up for some reason.

But a Shareholder’s Agreement is so much more than just something to deal with the breakdown of a business relationship. Life happens while we are busy making plans, and sometimes life’s happenings can throw us curve balls that will affect not only our relationships, but the business. Disabilities, untimely deaths, marriage breakdown, and simple falling-out between partners can mean disaster if these scenarios (and others) have not been given due consideration.

Also known as a Buy-Sell Agreement, a Shareholder’s Agreement is designed to help you and your business navigate life’s tricky twists and turns. Although the reference to “shares” implies it is limited to corporate ventures, similar partnership agreements can be drawn up for other business structures.

Among other things, a Shareholder’s Agreement will contain terms that come into play when a partner:

• Wants to sell their share of the business.
• Becomes disabled.
• Dies.
• Has life changes that affect their personal estate plan.

Advantages of having a well-drafted Shareholder’s Agreement include:

• Having a road map to follow when an unexpected change happens.
• The value of the business is preserved.
• Taxes are minimized.
• Surviving (or remaining) owners are protected, as is the business.
• Elimination of miscommunications and discord between surviving family members (of a deceased or disabled partner) and the other business partners.

10 common clauses found in a Shareholder’s Agreement

1. Valuation
2. Restrictions
3. First Right of Refusal
4. Shot-Gun Clause
5. Disability
6. Death
7. Retirement
8. Marriage Breakdown
9. Funding
10. Payment

As with any legal agreement, a Shareholder’s Agreement is something that requires a lot of conversation and thought prior to walking into your lawyer’s office. This is not conversation that will likely come easily or naturally to you and your partners, and so your financial planner or accountant may be able to help you discern the issues that are of importance.

Life’s curve balls do not have to have tragic consequences. Review your current Shareholder’s Agreement for viability, and if you don’t have one – well then, you know what to do.

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CA home buyer credit going, going...

As we posted in March and April, California offered a tax credit for new home purchases between March 1, 2009 and February 28, 2010. (More info on the credit is available on our website.) The credit is first-come, first-served. As predicted, the money is running out fast -- and may actually have run out. The FTB updated their website today with the following information: "We have reached $100 million in new home credit applications. Because many of these are duplicates, revised, or invalid, we plan to receive 12,000 applications. This will ensure we have more than enough valid applications to allocate the full $100 million. These additional applications will be subject to the availability of remaining credits." As of Wednesday, the FTB had received10,633 applications claiming $102,638,616. Builders have asked the state to increase funding for the credit. We'll see how that goes.

AFRs for July

AFRs for the month of July...

	Annual	Semiannual	Quarterly	Monthly
Short-term (≤ 3 years)	0.82%	0.82%	0.82%	0.82%
Mid-term (> 3 years but ≤ 9 years)	2.76%	2.74%	2.73%	2.72%
Long-term (> 9 years)	4.36%	4.31%	4.29%	4.27%

Debates on Health Care Reform

For those following the developments related to the President's proposed health care reform, Slate magazine post an interesting Q&A interview with The White House's Peter Orszag. We will be watching this issue closely as it makes its way through Congress. What are your thoughts on the issue of health care reform?

Interest-free SBA Loans

The Small Business Administration has begun offering interest-free loans of up to $35,000 to small businesses through SBA-approved lenders. The loans are made under the America’s Recovery Capital Loan Program ("ARC"), and can be used to make payments on one or more existing, qualifying small business loans for up to six months. ARC loans carry a 100 percent guaranty from the SBA to the lender, and require no fees paid to SBA. Eligibility information from the SBA website includes the following:

ARC loans are available to viable, for-profit small businesses in the U.S. that have qualifying small business loans and are experiencing immediate financial hardship.

Your small business must be:

• an established business
• have financial statements demonstrating it was profitable in one of the past two years, and
• be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval.

If your business does not meet these criteria, you can discuss your eligibility with your lender. ARC loans are not designed for start-up businesses.

ARC loans are designed to help businesses experiencing immediate financial hardship for reasons such as:

• Loss/reduction of customer base
• Increase in cost of doing business
• Loss/reduction of working capital and/or loss/reduction of short term credit facilities
• Inability to restructure existing debts due to credit restrictions
• Loss/reduction of employees (intellectual capital)
• Loss/reduction of major suppliers (major suppliers out of business)

For more information on the program, please visit the SBA website.