I once worked with a client who had started a business with her cousin. By the time she got to me, their dream of running a restaurant together had turned into a nightmare and she just wanted out. Her cousin had been stealing from the business and she didn’t know how to deal with it without getting the cousin in trouble with the law.
Because my client was the majority shareholder, we were able to remove the client’s access to the money and other important aspects of the business but, and this is a huge “but”, the cousin remained a shareholder. That’s because, unless you provide for it in a shareholder’s agreement, there is no way to remove a shareholder from a company, other than by paying them out.
After being removed from access to the money, the cousin tried his best to make my client’s life as miserable as possible. Finally, in order to be free of the giant pain in the ass, my client ended up paying the cousin out.
When I asked my client, who had incorporated with the help of a lawyer, why the lawyer hadn’t suggested an agreement between the business owners, she sheepishly admitted that he had, but she didn’t think anything really bad would happen and she didn’t think it was worth the money.
Cost of a shareholder agreement- $2,000 -$5,000
Cost of paying out a shareholder who has become a nightmare: unlimited (in this particular case, over $80k)
I see, time and time again, entrepreneurs risking their business, their home, their credit and their lifestyle because they didn’t think anything bad could happen to them. And you know, maybe it won’t. Maybe you’ll be one of the lucky few who sail through business without ever having a legal issue. But what if you don’t win this liability lottery?
What are you choosing to put at risk by failing to protect your business?
I believe that if we truly value something, we have to protect it. If you agree, sign up to receive my newsletter where I share tips on how you can protect your money maker.
P.S. You’re not a beginner entrepreneur, so why are you still treating your business like it’s not worth anything? If you’re already making money and you are serious about your plans for world domination, you need legal support to get there. I’ve created an annual retainer program for entrepreneurs who are serious about their business and you’re invited to apply.