Legal Forms: Tools or Traps? Get the lowdown on legal forms and agreements.
By Joan E. Lisante •
Opinions expressed by Entrepreneur contributors are their own.
Q: Canyou help me find a place to view sample shareholder agreements thatI can use to construct mine? My attorney would love to write thisfor us, but that would cost my company around $3,000. We just needa simple form to work from so we can figure out the dos anddon'ts of this type of agreement.
A: Oneof the biggest developments in the past 20 years or so has been theexplosion of legal self-help material. Today you can pick up acontract or two at Office Depot or scout the library or the Web forbooks and software on constructing everything from a lease to abankruptcy petition.
This movement has many pluses. It forces business owners to getmore involved. And as you pointed out, it saves buckets of money.So when should you consider using a legal form rather than payingyour attorney $250 per hour? Here are a few suggestions:
- After you've thought through what you need from thisdocument and written down everything that should be included.
- After you've reviewed at least three examples of the kindof document you're looking for. For example, you'll findamazing variety when comparing different simple contractforms.
- When the thing you're trying to accomplish is simple androutine. Obvious examples are an invoice or a collectionletter.
- When a mistake won't cost you your business.
- You should avoid the quick-and-dirty legal form routewhen:
- You've never constructed a document like this before andyou're not sure what's important.
- The agreement has tax consequences, and your tax knowledge isconfined to Turbo Tax 2000 and your accountant's phonenumber.
- You're dealing with another party who has five attorneys onstaff.
- What you're trying to accomplish is a little out of theordinary.
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; shareholderrights and obligations; how shares will be funded; whether therewill be common or preferred stock; whether, when and how shares canbe sold; who the officers and directors are; what accounting systemwill be used; what happens if the company liquidates; what statelaw applies; how disagreements will be handled; how the agreementcan be changed; and so on.
It's not impossible to come up with a workable shareholderagreement, but you've got to avoid the minefields. Frankly,I'd cobble one together (after brainstorming with fellowshareholders) and have an attorney standing by to review it.It's easier to avoid problems at the outset than to fix themlater. So give it your best shot, but get help before signing onthe dotted line. Let your legal form be a tool rather than atrap.
Joan E. Lisante is an attorney and freelance writer who lives inthe Washington, DC, area. She writes consumer-related legalfeatures 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 wascounsel for Zapnews, a fax-based customized news service for radiostations. Previously, she served as Assistant District Attorney inQueens County, New York, and Deputy District Attorney in NassauCounty, New York.
The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.
