Legal Forms: Tools or Traps?
Q: Can you help me find a place to view sample shareholder agreements that I can use to construct mine? My attorney would love to write this for us, but that would cost my company around $3,000. We just need a simple form to work from so we can figure out the dos and don'ts of this type of agreement.
A: One of the biggest developments in the past 20 years or so has been the explosion of legal self-help material. Today you can pick up a contract or two at Office Depot or scout the library or the Web for books and software on constructing everything from a lease to a bankruptcy petition.
This movement has many pluses. It forces business owners to get more involved. And as you pointed out, it saves buckets of money. So when should you consider using a legal form rather than paying your attorney $250 per hour? Here are a few suggestions:
- After you've thought through what you need from this document and written down everything that should be included.
- After you've reviewed at least three examples of the kind of document you're looking for. For example, you'll find amazing variety when comparing different simple contract forms.
- When the thing you're trying to accomplish is simple and routine. Obvious examples are an invoice or a collection letter.
- When a mistake won't cost you your business.
- You should avoid the quick-and-dirty legal form route when:
- You've never constructed a document like this before and you're not sure what's important.
- The agreement has tax consequences, and your tax knowledge is confined to Turbo Tax 2000 and your accountant's phone number.
- You're dealing with another party who has five attorneys on staff.
- What you're trying to accomplish is a little out of the ordinary.
When you're looking to put together a shareholder agreement, it helps to know all the parts. A typical shareholder agreement, which usually addresses who the shareholders are; shareholder rights and obligations; how shares will be funded; whether there will be common or preferred stock; whether, when and how shares can be sold; who the officers and directors are; what accounting system will be used; what happens if the company liquidates; what state law applies; how disagreements will be handled; how the agreement can be changed; and so on.
It's not impossible to come up with a workable shareholder agreement, but you've got to avoid the minefields. Frankly, I'd cobble one together (after brainstorming with fellow shareholders) and have an attorney standing by to review it. It's easier to avoid problems at the outset than to fix them later. So give it your best shot, but get help before signing on the dotted line. Let your legal form be a tool rather than a trap.
Joan E. Lisante is an attorney and freelance writer who lives in the Washington, DC, area. She writes consumer-related legal features for The Washington Post, the Plain Dealer, the Spokane Spokesman-Review and the Toledo Blade (Ohio). She is also a contributing editor to LawStreet.com and ConsumerAffairs.com.
In her practice, Lisante is counsel to ConsumerAffairs.com and was counsel for Zapnews, a fax-based customized news service for radio stations. Previously, she served as Assistant District Attorney in Queens County, New York, and Deputy District Attorney in Nassau County, New York.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.
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