Shareholder agreements - bootstrapping

YouBuyLocal

Hi,

Not looking for legal advice but would anyone know how best to go about drawing up shareholder agreements - and I mean how much would it cost to get a half decent solicitor to do it? I am starting a business with some other people but we are bootstrapping so don't have cash to spare on legal fees. How do you set up agreements that are binding in court if you don't have a solicitor write them up?

Has anyone ever given credit to a start-up for legal services? Just chancing my arm, but I don't really know how to procede with this and it is pretty crucial.

nuac

What is bootstrapping?

The shareholders' agreeement is fundamental to your business. It is false economy to do it on a DIY basis.

Make a note of what you have agreed and show it to your solicitor.

Some solicitors do give some credit to start ups. The theory is that if the business prospers they will stay with that office. Sometimes that does happen, sometimes not.

I remember one shareholders agreement which was incorporated in the company's memo and articles. It provided that the firm drawing up the agreement would always be the company's solicitor. It was drafted by one of the Dublin Big Five!. Absolutely unenforceable imho and so it turned out in that case.

YouBuyLocal

Bootstrapping means minimizing costs in a start-up and paying only for what is absolutely necessary up-front. I have three developers and are working off an agreement that they will receive shares in the company + a full-time job and profit share agreement, which means we really need to form a legal agreement. But this is a complex process and I am hoping that by understanding as much of the process as possible myself I can minimize costs. So I am not trying to do a DIY job, but it is prudent to investigate these things before throwing away cash unnecessarily.

Many web-businesses are set up by bootstrapping and it is perfectly legitimate. Lack of capital should never inhibit someone's ambition to go into business and there are many ways of significantly reducing costs. Our capital at the moment is our skill-base.

How would you suggest going about finding a solicitor who will work (partially) on credit? I don't expect someone to do it for free but I am willing to form an agreement that states that they would receive over the usual rate if we are successful by reducing the upfront payment.

I remember one shareholders agreement which was incorporated in the company's memo and articles. It provided that the firm drawing up the agreement would always be the company's solicitor. It was drafted by one of the Dublin Big Five!. Absolutely unenforceable imho and so it turned out in that case

I don't understand this statement fully. Are you saying that the company came unstuck because the solicitor had stuck himself into the contract (memo & articles) as a permanent client?

Are the "Dublin Big Five" the top law firms? Surely its not necessary to get someone so specialised in the early stage? What type of solicitor should I be looking for? If I found a solicitor that had spent the last 10 years doing conveyances for property developers would they be a bad person to go to for a decent shareholders' agreement?

YouBuyLocal

I want to write a shareholders agreement for each member of the team but I want to separate them so each team member doesn't know what the other holds. The only things I want in the agreements (other than all the complicated stuff that I have to account for regardless) are what the team members role is and what shares he has. Can I incorporate the company and issue all shares to me and one other guy, then do private agreements with each member to issue them shares tying them to a confidentiality agreement, which supercedes the Arts & Mem of Ass?

nuac

B ootstrapping - that used to be a term re restarting a computer. These days everybody only pays up front for what is essential.

If you are forming a company you cannot have confidential shareholders' agreements between youself and with each member. Not the best way to embark on a project where you each depend on each other.

I suggest you are allowing yourself to be distracted by set up complications. As you do not appear to know much about setting up companies you are going to waste a lot of time and energy trying to find out. That time and energy would be better spent on the actual business plan and implementation of it.

As already advised summarise what you want to do as regards the project and relations between the proposed shareholders and then ask a solicitor to draft an agreeement. Any solicitor who acts for any local business would be able to draft this.

Re provision in the Co Memo and Arts re a particular solicitor always acting - it was unenforceable in that the company were able to change solicitors without any bother. It didnt affect the status of the company

YouBuyLocal

nuac wrote: »

B ootstrapping - that used to be a term re restarting a computer. These days everybody only pays up front for what is essential.

If you are forming a company you cannot have confidential shareholders' agreements between youself and with each member. Not the best way to embark on a project where you each depend on each other.

I suggest you are allowing yourself to be distracted by set up complications. As you do not appear to know much about setting up companies you are going to waste a lot of time and energy trying to find out. That time and energy would be better spent on the actual business plan and implementation of it.

As already advised summarise what you want to do as regards the project and relations between the proposed shareholders and then ask a solicitor to draft an agreeement. Any solicitor who acts for any local business would be able to draft this.

Re provision in the Co Memo and Arts re a particular solicitor always acting - it was unenforceable in that the company were able to change solicitors without any bother. It didnt affect the status of the company

There is bootstrapping and then there is Bootstrapping - and as a recent graduate who has convinced three people to work for free because I haven't the cash to pay anyone it means I am Bootstrapping. Now I have a delicate situation to manage.

This is NOT a distraction. If I offer the stake that the original developer that he wants I can't offer it to the new lad, even though the new lad is, even after a short period, contributing more on the technical side, the side the original lad was supposed to be able to handle.

Milk & Honey

I think you should give up. You are living in fantasy land if you think you will find a lawyer to do that work without a cash payment. You are also very foolish to publish so much detail about your business on the internet. It could be read by the very people you are talking about.

YouBuyLocal

Milk & Honey wrote: »

I think you should give up. You are living in fantasy land if you think you will find a lawyer to do that work without a cash payment. You are also very foolish to publish so much detail about your business on the internet. It could be read by the very people you are talking about.

I really appreciate your support, I know how much of an effort it takes to come on boards to tell someone you don't know to "give up" on a serious dilemma. I suppose you mean "give up" on the business. Or is it "give up" on the whole idea of having legal agreements put in place.

I take your point about throwing such information on the internet but it is very unlikely to be read by my people. Its down now anyway.

The object of the thread is to find out how to do as much of it as I can myself, NOT to get a solicitor to do it for free. Foolish or not, I've no other option. There is no "give up" route I can take without sacking people.

blueythebear

YouBuyLocal wrote: »

I really appreciate your support, I know how much of an effort it takes to come on boards to tell someone you don't know to "give up" on a serious dilemma. I suppose you mean "give up" on the business. Or is it "give up" on the whole idea of having legal agreements put in place.

I take your point about throwing such information on the internet but it is very unlikely to be read by my people. Its down now anyway.

The object of the thread is to find out how to do as much of it as I can myself, NOT to get a solicitor to do it for free. Foolish or not, I've no other option. There is no "give up" route I can take without sacking people.

You cannot draft up this type of document yourself as your posts clearly show that you do not have the required skills / knowledge to do so. Pay for a solicitor to advise you. It would not cost very much and would save alot of hassle in the future. You might save a few quid now, but it will cost alot more in the future if not carried out correctly.

It's easily foreseeable that you are going to have issues with this agreement given the differing conditions you are attaching to the various shareholders and your insistence that they are all kept in the dark in relation to their respective contributions. Apart from any legal issues resulting from this "agreement", there are several issues with it from a morale stance but how you decide to do business is up to you.

However, if you wish to conduct your business in the way you are suggesting, you will need an airtight agreement between shareholders, which brings me back to my suggestion, get a solicitor.

YouBuyLocal

blueythebear wrote: »

You cannot draft up this type of document yourself as your posts clearly show that you do not have the required skills / knowledge to do so. Pay for a solicitor to advise you. It would not cost very much and would save alot of hassle in the future. You might save a few quid now, but it will cost alot more in the future if not carried out correctly.

It's easily foreseeable that you are going to have issues with this agreement given the differing conditions you are attaching to the various shareholders and your insistence that they are all kept in the dark in relation to their respective contributions. Apart from any legal issues resulting from this "agreement", there are several issues with it from a morale stance but how you decide to do business is up to you.

However, if you wish to conduct your business in the way you are suggesting, you will need an airtight agreement between shareholders, which brings me back to my suggestion, get a solicitor.

Hi, thanks for the comment. I understand that I cannot draft the document completely myself, but is it the case that I could write up as much of it or get a template and simply get a solicitor to iron it out for me to reduce costs?

I am a very meticulous person and do not intend to be haphazard or to conduct my business carelessly, but I do intend to save costs and learn enough about the process that I can myself. Surely that is the wisest path for someone without endless resources to spend on legal fees. I think I would do that anyway rather than trust a solicitor implicitly - nothing against the profession but with my interests on the line as opposed to theirs it is only rational. Now I am only a young man and am new to all of this but is there anyone who can explain to me how, after you incorporate the company, the shareholders can issue new shares. Do you need unanimous decision from every shareholder or just 75%? Is that defined in company law or in the Arts or Mems of Ass? Do you need to alter the Arts & Mems to do this or just draw up a private shareholders agreement which is witnessed and signed?

YouBuyLocal

blueythebear wrote: »

You cannot draft up this type of document yourself as your posts clearly show that you do not have the required skills / knowledge to do so. Pay for a solicitor to advise you. It would not cost very much and would save alot of hassle in the future. You might save a few quid now, but it will cost alot more in the future if not carried out correctly.

It's easily foreseeable that you are going to have issues with this agreement given the differing conditions you are attaching to the various shareholders and your insistence that they are all kept in the dark in relation to their respective contributions. Apart from any legal issues resulting from this "agreement", there are several issues with it from a morale stance but how you decide to do business is up to you.

However, if you wish to conduct your business in the way you are suggesting, you will need an airtight agreement between shareholders, which brings me back to my suggestion, get a solicitor.

Also, I understand your point about keeping them in the dark about each other. Even if I can do this it would probably bite me in the ass later on and wouldn't be respectful. Doing this would break any agreement I have with any of the team, it would just allow me to avoid an awkward conversation. Thats not a good enough reason though