Checklist for Shareholders, Members and Partners Agreement

Crossing the T’s and Dotting the I’s

This Preventive Law Study was written by:  John Goodson, Colleen Manley and Christine Goodson Forakis.

Summary

The following items need to be considered and agreed upon at the initial organizational meeting. Once a consensus is reached on each of these points, they should be memorialized in a Shareholders’, Members’, or Partners’ Agreement.

1. Integrity Agreement
   1. Agreement among the principals to resolve all disputes under the dispute resolution procedures outlined in the Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes), as promulgated by the College of Preventive Law.
   2. Agreement to use the Integrity Agreement with all persons connected with the business.
   3. Agreement on a mutual place to meet for dispute resolution.
   4. Identification of the mediators for the mediation stage of the Integrity Agreement.
2. Confidentiality Agreement
   1. Identification of all persons in the business who must be able to communicate with one another without fear of disclosure outside the group.
   2. Identification and list of all trade secrets within the business and how they will be protected.
   3. Agreement among all parties not to badmouth each other should the relationship turn sour or dissolve.
3. Japanese Agreement
   1. Agreement among all parties that the intent of the relationship is never to cause a hardship by missing or not thinking through any aspect of the Agreement. If situations should change where a provision of the Agreement causes unfair hardships to any party or becomes imbalanced where it is no longer a win-win arrangement, then the inequity may be renegotiated under the Integrity Agreement.
4. Benefits Anticipated by Each of the Parties
   1. Determination of what each person expects from the relationship as far as benefits – monetary and otherwise.
   2. Written expression of the win-win agreement so that it will be clear to all parties that the benefits are fair and mutual and that the parties will have more with the relationship than without it.
5. Business Objectives Within 5 Years
   1. A written plan of what the business wants as assets at the end of 5 years.
   2. A written plan of what the business will be doing in 5 years.
   3. A written plan that defines a “common,” concurring vision.
   4. A written plan of the size where you all want to “top out” – “mom and pop” or multi-state.
   5. A written plan of when the annual objectives and budgets will be set.
6. Mission Statement
   1. A written statement of what you will do for customers, clients, or patients.
   2. A written statement of what you will do for your employees.
   3. A written statement of what you will do for your stockholders, members, or partners.
   4. A written statement of what you will do for your management team.
   5. A written statement of what you will contribute to humankind.
7. Image Statement
   Determination by the principals as to the image they wish the business to project.
   1. A written statement of how you want the public to perceive the business (price, services, goods, marketing, clients, premises and employees).
   2. A written statement of potential negative images to avoid.
   3. A written statement of potential positive images to accentuate.
   4. A written statement of ways to project the best image which each party agrees to accomplish.
8. Values
   1. A written statement of values that each of you hold dear which you want as a policy of the new business.
   2. A written statement of practices you do not want in your organization.
   3. A written statement identifying the parties’ assumed factual representations which, if not true, would preclude the parties coming together.
   4. A written statement of facts or conditions that are essential for all parties to go ahead.
9. Issuance of Stock/Paid-in Captital
   Determination of the amount of stock to be issued, the price per share, and the amount of paid-in capital per investor.
   1. Identification of who will contribute initial capital.
   2. Identification of the amount of initial capital total.
   3. Identification of the numbers of shares to be issued – voting and non-voting.
   4. Identification of how additional contributions will be treated – stock, loans, or paid-in capital.
10. Loans to the Business
    1. Identification of who will personally guarantee loans.
    2. Identification of ceiling amount for loans.
    3. Determination and identification of preferred interest rates.
    4. Authorization and approval of guarantor’s fees to Shareholders.
    5. Identification of the security, interest, and payback for any loans to the business from shareholder, member or partner.
11. Ressonsibilities of Principals
    Determination of the territorial limits, responsibilities, and duties of the principals.
    1. Identification of expertise of each principal.
    2. Specification of how to best utilize that expertise.
    3. Determination of whether the business will be divided into territories of responsibility.
    4. Identification of the duties and tasks each principal agrees to accomplish.
    5. Preparation of a business Information Summary Worksheet
12. Positions of Principals
    1. Identification of directors, managing members, general partners.
    2. Identification of legal officers: (1) President, (2) Vice President, (3) Secretary, (4) Treasurer, (5) Assistant Secretary, (6) Assistant Treasurer, (7) Statutory Agent, and (8) Transfer Agent.
    3. Identification of financial officers: (1) Chief Executive Officer, (2) Chief Operating Officers, (3) Vice President – Finance, (4) Vice President – Administration and Human Resources, and (5) Vice President – Operations/Purchasing Marketing.
    4. Plans for rotating positions.
13. Salaries, Commissions, and Bonuses
    Determination of salaries, commissions, and bonuses for officers and employees.
    1. Identification of amount of salaries, commissions, and bonuses for principals.
    2. Determination of incentive pay based on objective or subjective standards.
    3. Specification of salary range for employees according to position.
    4. Determination of how compensation will be reviewed each year should inequities occur.
14. Fringe Benefits
    Determination of fringe benefits for officers and employees.
    1. Identification of the types of benefits to be provided for principals.
    2. Identification of the types of benefits to be provided for all employees.
    3. Determination of when fringe benefits will be available.
    4. Determination for who fringe benefits will be available – specific and general to all employees.
15. Dividends
    Determination if and when dividends will be declared.
    1. Identification of when dividends will be declared.
    2. Determination of criteria for dividends.
    3. Determination of S Corporation or C Corporation.
16. Employees
    Determination as to the employment policies of the business.
    1. Identification of the number of employees and positions for employees.
    2. Identification of length of employment.
    3. Determination of need for employee manual.
    4. Identification of immediate supervisors.
    5. Specification of hiring and firing procedures.
17. Black-Ball System
    Determination of procedure for dismissing employees and advisors.
    1. Determination of vote needed to black ball employee.
    2. Determination of vote needed to black ball advisor.
18. Advisory Team
    Selection of an advisory team to assist the business.
    1. Selection of a CPA.
    2. Selection of business and estate attorneys.
    3. Selection of litigation attorney.
    4. Selection of life insurance agent of record.
    5. Selection of property and casualty insurance agent of record.
    6. Selection of bankers.
    7. Selection of investment advisors.
    8. Selection of public relations advisors.
    9. Selection of marketing consultants.
    10. Selection of human resources advisor.
    11. Selection of management consultant.
    12. Selection of computer consultant.
19. Liaisons
    Selection of liaisons to assist the business.
    1. Selection of CPA’s liaison.
    2. Selection of attorneys’ liaison.
    3. Selection of life insurance agent’s liaison.
    4. Selection of property and casualty insurance agent’s liaison.
    5. Selection of banker’s liaison.
    6. Selection of investment advisor’s liaison.
    7. Selection of public relations advisor’s liaison.
    8. Selection of marketing consultant’s liaison.
    9. Selection of human resources advisor’s liaison.
    10. Selection of management consultant’s liaison.
    11. Selection of computer consultant’s liaison.
20. Attorney and Accounting Fees
    1. Determination of which individuals will guarantee payment by the business of all organizational fees and continuing professional fees.
21. Property, Casualty and Liability Protection
    Arrangements to be made to adequately protect the business in the event of any lawsuits involving the business.
    1. Identification of what type of insurance is to be purchased.
    2. Determination of the limits for policies.
    3. Determination of umbrella liability coverage for business and individuals.
    4. Specification of the criteria for increasing coverage.
22. Succession Plan
    1. Identification of what business will do on death of each principal.
    2. Identification of who will assume the positions.
    3. Identification of who backs up each principal and is cross-trained for such contingency.
23. Death Buy-Sell Agreement
    Arrangements to be made on the death of an officer, shareholder, director, member or partner. Such a buy-sell agreement usually is funded at least partially by life insurance. Topics to be discussed include:
    1. Specification of how to determine value.
    2. Determination of whether widow/widower has the right to keep stock ownership.
    3. Determination of key man life insurance.
    4. Identification of terms of buy-back.
    5. Determination of life insurance to fund the buy-back of stock.
24. Disability Buy-Sell Agreement
    Arrangements to be made on the long-term disability of an officer, shareholder, director, member or partner.
    1. Specification of how to determine value.
    2. Identification of the terms of buy-sell provisions.
    3. Identification of what constitutes a long-term disability to trigger the buy and sell.
    4. Determination of disability buy and sell insurance to fund Agreement.
    5. Determination of other disability insurance for salary replacement.
25. Disgruntlement Buy-Sell Agreement
    Arrangements to be made on the disgruntlement of an officer, shareholder, director, member, or partner who wants to withdraw from the business.
    1. Identification of terms of buy-back.
    2. Identification of sliding scale penalty for voluntary withdrawal.
    3. Determination of stock shoot-out provision.
    4. Specification of how to determine value.
26. Retirement Buy-Sell Agreement
    Arrangements to be made on the retirement of an officer, shareholder, director, member or partner.
    1. Identification of retirement plan contributions.
    2. Identification of mandatory retirement age.
    3. Determination of salary, fringe benefits, or office continuation after retirement.
    4. Specification of method of valuation of business for retirement principals.
27. Involuntary Severance Buy-Sell Agreement
    Arrangements to be made in the event of the involuntary severance by the business of an officer, shareholder, director, member or partner.
    1. Specification of how to determine value.
    2. Identification of terms of buy-sell agreement.
    3. Identification of grounds for involuntary severance (such as conviction of criminal offense, bankruptcy, moral turpitude, disbarment, and other grounds).
    4. Identification of possible penalties for termination under such situations.
28. Divorce of Shareholder
    Arrangements to be made in the unlikely event an officer, shareholder, director, member, or partner becomes divorced.
    1. Determination whether stock/equity ownership will be treated as community property, separate property or joint property.
    2. Determination whether buy and sell agreement is necessary on divorce.
    3. Identification of terms of buy and sell agreement.
    4. Determination whether spouse will relinquish claim to corporate stock/equity interest and seek value from other joint assets.
29. Salary Continuation and Retirement
    Determination by principals as to whether the business will offer its employees and officers any type of deferred compensation or retirement plan.
    1. Identification of the criteria for deferred compensation or retirement plan.
    2. Identification of the eligible employees and/or officers.
    3. Determination when such a plan will be offered.
    4. Identification of the vesting provisions or requirements.
30. Life Insurance
    Determination of what life, disability, and medical insurance will be purchased on each officer and employee.
    1. Determination whether such insurance will be purchased for the benefit of the business.
    2. Determination whether such insurance will be purchased for the benefit of the individual.
31. Moonlighting Disclosure
    1. Determination of whether each principal should disclose all outside interest that may impact his or her job performance and/or involvement with the business.
32. Corporate Opportunities Doctrine
    1. Explanation of the corporate opportunity doctrine by the attorney and how it affects the principals and their outside interest and agreements.
33. Outside Investors
    Determination of whether corporation will remain a closed family corporation or allow other investors.
    1. Determination of public sales.
    2. Identification of limit for outside investors.
    3. Specification of the criteria for selecting outside investors.
    4. Determination of whether corporation will allow public sale of stock.
34. Sale of Business
    Determination of how owners will be treated on the sale of the business.
    1. Identification of reasonable, permissible limits for employment agreements and earn outs with buyer, without adjusting share portions of purchase price.
    2. Identification of pro rate split based on stock/equity ownership plus surplus given to select few with employment agreements above permissible limits being split among all stockholders/equity owners.
35. Stock Owned by Corporation
    1. Identification of who will vote for the corporation stock owned in other corporations.
36. Attorneys of Individual Shareholders, Members and Partners
    1. Review of the Agreement by the attorneys representing the parties individually and who represent the shareholder, member or partner.

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