Ungrateful & Pretentious
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UNGRATEFUL & PRETENTIOUS JULY 2009 EDITION GOODVOY.COM ENJOYOURCITY.COM OURCORRUPTGOVERNMENT.COM SHAREHOLDERS AGREEMENT BUY & SELL CLAUSE HELP TO ENSURE THAT A “FAIR” PRICE IS OFFERED BECAUSE THE OFFER PRICE COULD GO EITHER WAY Complete Guide to Ethics Management: An Ethics Toolkit for Managers Decision-Making Ethical Checklist Circle the appropriate answer on the scale; "1" = not at all; "5" = totally yes 1. Relevant Information Test. Have I/we obtained as 1 2 3 4 5 much information as possible to make an informed decision and action plan for this situation? 2. Involvement Test. Have I/we involved all who have a 1 2 3 4 5 right to have input and/or to be involved in making this decision and action plan? 3. Consequential Test. Have I/we anticipated and 1 2 3 4 5 attempted to accommodate for the consequences of this decision and action plan on any who are significantly effected by it? 4. Fairness Test. If I/we were assigned to take the place 1 2 3 4 5 of any one of the stakeholders in this situation, would I/we perceive this decision and action plan to be essentially fair, given all of the circumstances? 5. Enduring Values Test. Do this decision and action 1 2 3 4 5 plan uphold my/our priority enduring values that are relevant to this situation? 6. Universality Test. Would I/we want this decision and 1 2 3 4 5 action plan to become a universal law applicable to all similar situation, even to myself/ourselves? 7. Light-of-Day Test. How would I/we feel and be 1 2 3 4 5 regarded by others (working associates, family, etc.) if the details of this decision and action plan were disclosed for all to know? 8. Total Ethical Analysis Confidence Score . Place the total of all circled numbers here. How confident can you be that you have done a good job of ethical analysis? 7-14 Not very confident 15-21 Somewhat confident 22-28 Quite confident 29-35 Very confident Used with permission from Copyright holders: Doug Wallace and Jon Pekel, Twin Cities-based consultants in the Fulcrum Group (; e-mail at [email protected]). Do not copy without reference to copyright owners. Not to be used for commercial purposes. Method Two - Ten-Step Method of Decision Making Wallace and Pekel also provide the following ten-step method. STEPS NOTES 1. What are the known FACTS in the situation? 2. Who are the key STAKEHOLDERS, what do they value and what are their http://www.managementhelp.org/ethics/ethxgde.htm#anchor23124[3/16/2009 10:53:06 AM] The Shareholders Agreement Business Basics for The Engineers by SHAREHOLDERS Mike Volker (www.mikevolker.com) AGREEMENT Why Bother? A company is owned by its shareholders. The shareholders appoint the directors who then appoint the management. The directors are the "soul" and conscience of the company. They are liable for its actions. Shareholders are not liable for company actions. Management may or may not be liable for company actions. Often these roles are assumed by the same individuals but as a company grows and becomes larger, this may not be the case. When a company is created, its founding shareholders determine how a company will be owned and managed. This takes the form of a "shareholders agreement". As new shareholders enter the picture, for example angel investors, they will want to become part of the agreement and they will most likely add additional complexity. For example, they may want to impose vesting terms and also mechanisms to ensure that they ultimately can exit and get a return on their investment. Not having such an agreement can lead to serious problems and disputes and can result in corporate failure. It's a bit like a prenuptial agreement. Companies must comply with the law. Companies are incorporated in a particular jurisdiction (e.g. State, Province or Country) and must adhere to the applicable legislation, e.g. the Canada Business Corporations Act, or the B.C. Corporations Act. This legislation lays out the ground rules for corporate governance - what you can and cannot do, e.g. who can be a director? can a company issue shares? how can you buy or sell shares? etc. When a company is formed, it files a Memorandum and Articles of Incorporation (depending on jurisdiction) which are public documents filed with the Registrar of Companies. A shareholders agreement is confidential and its contents need not be filed or made public. When a company is formed, its shareholders may decide on a set of ground rules over and above the basic legislation that will govern their behavior. For example, how do you handle a shareholder who wants "out" (and sell her shares)? Should it be possible to "force" (i.e. buyout) a shareholder? How are disagreements handled? Who gets to sit on the Board? What authority is given to whom for various decision-making activities? Can a shareholder (i.e. company founder) be fired? And so on... A company which is wholly owned by one person need not have such an agreement. However, as soon as there is more than one owner, such an agreement is essential. The spirit of such an agreement will depend on what type of company is contemplated. For example, a three-owner retail shop may adopt a totally different approach to that of a high tech venture which may have many owners. When a company has hundreds of shareholders or becomes a "public" company, the need for such an agreement disappears and the applicable Act and securities regulations then take over. Corporate Governance There is no substitute for good corporate governance. Even small companies with few shareholders are better served by good governance practices. Instead of trying to anticipate every possible future event or trying to be overly prescriptive, a structure that ensures the installation of an experienced board of directors is arguably the best approach. Why? Because directors are responsible to the company - NOT to the shareholders as is commonly thought. If directors add diligently with this mandate, many problems that arise can be solved. http://www.sfu.ca/~mvolker/biz/agree.htm[7/15/2009 11:28:53 AM] The Shareholders Agreement offered to a buyer. If a shareholder withdraws, should he be able to "force" the other shareholders to buy his shares? If he is forced out, can he keep his shares? If a shareholder (like a founder) gets shares for making certain commitments to the company over time, certain vesting conditions need to be specified. For example, if a founder quits, he should forfeit a percentage of his shares (if he agrees to a 3-year vesting and quits after 6 months, then he forfeits 5/6 of his shares. Perhaps the departing shareholder should sell some of all of his shares back to the company (or to other shareholders, pro-rata). In this case, a method of valuation (see below) would need to be established. (could include vesting details and termination on death in Article 2) A "shotgun" clause is often used to force a buy-out. It works like this: Shareholder A offers his shares to Shareholder B for a certain price per share (in the case of 2 shareholders). B can accept this offer or, in turn, offer the same terms to A in which case A must accept. This ensures that A will offer a "fair" price. In essence, one party will end up buying the other out (of course, the two parties can amicably simply agree on a price - this is easy if a shareholder wants to exit to pursue other interests. It gets tougher if both want to own and run the company. The shotgun approach is ideal for small businesses where the values are not too high because they favor the party with more cash resources. For high tech companies with high valuations and several shareholders, the shotgun approach would not work very well. What happens is a shareholder dies? There should be a fair means by which the surviving shareholders can (optionally or mandatorily) purchase shares from the estate of the deceased shareholder. The company ought to have life insurance policies in place so that such buy backs can be funded. It is a good idea to get some expert tax accounting advice on this matter as well. How will a value be placed on the shares? Options: outside valuation expert (expensive and unpredictable) or get the shareholders to mutually agree to a value and append this to the agreement as a schedule (which is periodically updated) or use a formula (multiple of earnings or sales, book value, etc) or a combination of the above. ARTICLE 5: PRE-EMPTIVE RIGHTS If new shares are to be issued from treasury, shareholders will generally be entitled to buy these before the company offers them to an outside investor (to avoid dilution). If an outside investor (e.g. venture capitalist) is brought in, these pre-emptive rights would likely have to be waived. ARTICLE 6: RESTRICTIONS ON TRANSFER, ETC. Spells out Share transfer restrictions, consents from others that may be required, etc. ARTICLE 7: TERMINATION Under what circumstances is the agreement terminated? (e.g. bankruptcy, dissolution, unanimous consent) Are there any penalties? What consitutes a breach? This is important where owners are committing "sweat equity" - what if they don't perform? If a shareholder defaults, what happens (time to correct default?), termination and buyout? ARTICLE 8: GENERAL COVENANTS What is the legal jurisdiction? Should also cover routines such as Notice of meetings - addresses, etc. and some other details, e.g.