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In Canada, it is very common that a company is born with partners, that is to say, that several people joined together to found the business, where each one contributed the best they could: financial capital, ideas and knowledge, effort and work, network of contacts, etc., this happens because immigrants often get obstacles when it comes to entrepreneurship and together it is all more bearable, but what happens when these partners fight for lack of understanding in the functions and operations?
In these cases, the shareholders' agreement is the ideal tool. This document serves to anticipate and detail how these situations will be handled, giving you a legal and procedural framework for the correct action of the partners when disagreements arise. Need to fix your company's conflicts? Read with me to the end and keep your business and the good relationship with your partners safe. Let's get started!
Even if a business partnership is on the right track and is in the process of expansion, no one can be sure that its partners will not clash at some point. In fact, it is quite common for disputes to arise due to unaligned expectations or lack of clarity in roles and responsibilities.
These are some typical examples of crucial fights or disagreements between partners in a company:
Maybe one partner wants to expand very quickly and the other prefers slow, organic growth. Maybe one wants to focus on a niche and the other on the mass market. It is also often the case that one partner is more reflective and unwilling to take risks and the other is more prone to take risky decisions.
In these cases, one partner may want to reinvest all the profits and the other partner may need a quick return. Sometimes, there are disagreements about how much the company is worth, and when they want to sell it, lawsuits start because they do not agree on a fair price for both parties. And what happens if the company needs more money, who should put it in and in what proportion? Or if one of the partners wants to invest in luxury while the other one thinks on the basis of need, etc.
When one partner feels that he/she works longer hours or puts in more effort than the other. Or if one partner is disinterested, fails to meet deadlines or assume responsibility. One partner may feel that the other is not as competent or effective in his or her role.
Inthese cases, friction comes from ambiguity. The result is that functions overlap and both parties do the same work or give contradictory orders. It is unclear who is responsible for which area or one partner constantly opines or intervenes in the decisions of the other, even if it is not their area of expertise, and heated arguments ensue.
This is the foundation of any relationship and if it fails, everything else suffers. Mistakes such as lack of transparency, withholding information, making decisions behind the other partner's back, etc., have a tremendous impact on the functioning of the business. Encouraging few or no regular meetings, lack of listening or unclear messages. Accumulation of unexpressed grievances that explode into major conflict.
Sometimes the communication style of one person can have a negative impact on the direction of the company, because one is direct and the other prefers a more indirect approach, this leads to misunderstandings and can result in the dissolution of a company, even if everything seemed to be going well.
Andit is that personal life inevitably ends up affecting professional life. For example, if one of the partners is getting divorced or has a serious illness, or too many family responsibilities that affect availability or commitment to his or her role. Or one partner may lose interest in the business to pursue another opportunity. Or one partner may be thinking about retirement, while the other seeks to scale the business at all costs.
Theseare critical moments that can generate a lot of friction due to disagreement over the valuation of a contribution, role or the percentage to be received from one of the parties.
The key to mitigating these conflicts is not to avoid them (they are almost inevitable), but to establish a shareholder or partner agreement that addresses potential scenarios from the outset. This document anticipates and details how potential conflicts will be handled, providing a legal and procedural framework that will guide partners when disagreements arise.
A shareholders' agreement is a legal document that establishes the terms and conditions of the relationship between the shareholders of a company. It defines, precisely, aspects such as:
The primary and most important person to draft a shareholders' agreement is a lawyer specializing in Business Law or Corporate Law. Some immigrant entrepreneurs have used generic templates, without legal advice from a Canadian lawyer, and have made blunders and exposure to potential risks by being poorly drafted, not meeting the province's specific standard or being incomplete.
Instead, the specialized lawyer knows what rules to establish between the shareholders (or partners) of a company. This will prevent future conflicts, define the rights and obligations of each party and lay the foundations for management and decision making.
A shareholders' agreement drafted by a specialized lawyer contemplates the vision and expectations of the partners. Because it is not just about filling out a form on the web, it is about understanding the individual and collective objectives and what is the vision for the company, from the contributions of each one (capital, labor, intellectual property) to the identification of potential areas of conflict.
Immiland Law is a legal services firm focused on immigrants in Canada. We have a team of lawyers specialized in corporate law for the success of your business. We offer everything from drafting legal documents to incorporate your company to resolving business disputes and drafting shareholder agreements.
With our guidance, you will have:
Do you want to avoid or need to resolve conflicts in your company? Without a doubt, a clear and well-drafted shareholder agreement is the solution. This document will lead you to the business stability you are looking for. Consult with our legal experts in Canada and protect your company with a shareholders agreement. Contact Immiland Law. View corporate law services here.
I hope this topic will be helpful and get you on the right track for your company.
Thank you very much for reading, see you in the next blog!
With love,
Immiland Law Professional Corporation
