CEO role - and shareholder agreement
Discussion
Hi,
Not sure if this or the business forum is right for this post, but here goes.
I'm going into a joint venture with another party, we have a shareholders agreement (which is with my solicitor right now) but assume it is ok for the purposes of this post.
When both parties sign that agreement, we have in principle agreed on the shareholders agreement and some details on the company formation. In this agreement it also details me as the CEO.
Before signing the shareholders agreement, do I need an employment contract and job description in place? or is that done at the board meeting once the company is formed and shareholder agreement in place?
I don't want to sign on the dotted line about building a company without some form of agreement on actual employment details do I? or what rough order of play should I be looking at. (This is my first time!!)
Thanks for any input.
Not sure if this or the business forum is right for this post, but here goes.
I'm going into a joint venture with another party, we have a shareholders agreement (which is with my solicitor right now) but assume it is ok for the purposes of this post.
When both parties sign that agreement, we have in principle agreed on the shareholders agreement and some details on the company formation. In this agreement it also details me as the CEO.
Before signing the shareholders agreement, do I need an employment contract and job description in place? or is that done at the board meeting once the company is formed and shareholder agreement in place?
I don't want to sign on the dotted line about building a company without some form of agreement on actual employment details do I? or what rough order of play should I be looking at. (This is my first time!!)
Thanks for any input.
Firstly, I applaud you on your recognition of the need for a Shareholders Agreement. Most of the stories of woe over on the Business section relating to breakdowns in board relationships tend to stem from the absence of such written agreements. Such documents don't stop those breakdowns from happening but they do make resolution much easier. So, Gold Star!
The need for an employment contract is really dependant upon the content of the shareholder agreement. If your respective roles, responsibilities and remuneration are clearly set out, then there isn't really any need for a separate employment contract. I don't believe there is any legal requirement to have an employment contract for owners as such (but not 100% on this).
The key is that the specifics relating to each are very clearly understood, documented and agreed by all. Whether that's in an employment contract or Shareholder Agreement is secondary.
The need for an employment contract is really dependant upon the content of the shareholder agreement. If your respective roles, responsibilities and remuneration are clearly set out, then there isn't really any need for a separate employment contract. I don't believe there is any legal requirement to have an employment contract for owners as such (but not 100% on this).
The key is that the specifics relating to each are very clearly understood, documented and agreed by all. Whether that's in an employment contract or Shareholder Agreement is secondary.
Thanks for this!
I'm thinking of asking for the following....
1. An employment contract that just breaks down my role and agreed remuneration as well as termination terms for both parties.
2. A sort of jobs or responsibilities overview document that covers both parties, this would be incorporated into the shareholder's agreement.
As I'm going to be a minority shareholder, are there items I should get written into the shareholder agreement also?
I'm thinking of asking for the following....
1. An employment contract that just breaks down my role and agreed remuneration as well as termination terms for both parties.
2. A sort of jobs or responsibilities overview document that covers both parties, this would be incorporated into the shareholder's agreement.
As I'm going to be a minority shareholder, are there items I should get written into the shareholder agreement also?
Canute said:
Thanks for this!As I'm going to be a minority shareholder, are there items I should get written into the shareholder agreement also?
A couple of things to consider:The creation of a proper shareholder agreement is probably the most unpleasant thing you can do in business as you have to approach it on the assumption that your fellow shareholders are going to rip you off and other nasty things will happen to you by them. And they approach it in the same way. But it has to be done.
As a minority shareholder with an employment contract, you could technically get fired but retain ownership in the business. Clearly that would be an untenable situation so there needs to be provision made in the agreement for this...particularly if you are investing into the business at the start (in cash or cash equivalent).
If you are investing actual money, you need to think about protecting this as much as you can. For example, if the majority shareholder decides he wants you out but has no grounds to kick you out, they can call for more shares to be sold. They can set the number and price and set this at a level that that's unaffordable to you. They buy the additional shares instead and your shareholding is then diluted. This is then repeated until your shareholding is as a good as nothing. They may then offer to buy your remaining shares which are likely to be worth little.....but without prior agreement, you may not get back your original investment.
Beyond that, everything else is really dependant on the business, your roles in it and what you both want from it.
Thanks again, much appreciated!
So, it feels like I'm going to need a few things writing into these agreements.
1. An anti share dilution clause.
2. Some protection on my employment / role as CEO... a really watertight employment agreement.
That's just for starting, I'm thinking there will be a lot more to be added here.
I'll be a minority shareholder, 49% and I'm bringing my client book and existing processes and other things like my network and expertise. The other party are providing funding and infrastructure for the entity to grow and largely "I'm told" I will be left alone to grow things as per an agreed plan.
So, it feels like I'm going to need a few things writing into these agreements.
1. An anti share dilution clause.
2. Some protection on my employment / role as CEO... a really watertight employment agreement.
That's just for starting, I'm thinking there will be a lot more to be added here.
I'll be a minority shareholder, 49% and I'm bringing my client book and existing processes and other things like my network and expertise. The other party are providing funding and infrastructure for the entity to grow and largely "I'm told" I will be left alone to grow things as per an agreed plan.
That's about it.
Given that you are not investing actual money, one further thing that you would do well to do is monetise what you are brining; in other words, consider what is the financial worth of your contribution if you were bringing cash instead.
This is easier said than done. However, in my (bitter) experience, unless you can agree on the monetary value of inputs from the outset, you may suffer if things get a bit fractured later on.
Good luck!
Given that you are not investing actual money, one further thing that you would do well to do is monetise what you are brining; in other words, consider what is the financial worth of your contribution if you were bringing cash instead.
This is easier said than done. However, in my (bitter) experience, unless you can agree on the monetary value of inputs from the outset, you may suffer if things get a bit fractured later on.
Good luck!
StevieBee said:
That's about it.
Given that you are not investing actual money, one further thing that you would do well to do is monetise what you are brining; in other words, consider what is the financial worth of your contribution if you were bringing cash instead.
This is easier said than done. However, in my (bitter) experience, unless you can agree on the monetary value of inputs from the outset, you may suffer if things get a bit fractured later on.
Good luck!
I'm pondering how best this can be done, right now the client book value is about £100K and currently just goes into roughly 10-15% running costs for the business, approx 50% tax and the rest is mine to pay my drawings. Given that you are not investing actual money, one further thing that you would do well to do is monetise what you are brining; in other words, consider what is the financial worth of your contribution if you were bringing cash instead.
This is easier said than done. However, in my (bitter) experience, unless you can agree on the monetary value of inputs from the outset, you may suffer if things get a bit fractured later on.
Good luck!
The new business venture would be gaining a £100k yearly revenue stream from day 1, this revenue has been also increasing yearly so next year would be a higher value also probably.
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