The conversation you have before anyone is angry

When I was sixteen my parents' software company nearly came apart because a co-founder left and nobody had written down what that meant. The business survived. The friendship did not. I decided then that I wanted to be the person who made families have that conversation early, and I have spent the last seventeen years doing it.

A shareholder agreement is a contract among the owners of a company about how they will behave towards each other. People resist writing one for the same reason they resist writing a will: it requires imagining the bad day. But a good contract is simply a conversation you had before anyone was angry, and the day you are angry is the worst possible time to start negotiating.

The first question it must answer is what happens when someone leaves. Voluntarily, involuntarily, through illness, through death. Who can buy the shares, at what price, on what timetable. If the answer is 'we'll work it out,' you have agreed to a dispute, and you have scheduled it for the moment you can least afford one.

The second question is how the price is set. A formula tied to the company's own books, a periodic valuation, or an independent appraiser with a defined method. Any of these works. What does not work is a number agreed years ago that nobody updated, or a mechanism that only one side can trigger. I have seen a 2009 valuation used to buy out a widow in 2021. It was legal. It was not right.

The third question is who decides. Family businesses often have three generations with different ideas about risk, and a voting structure that was designed for a company a tenth the size. Decide which decisions need which majority: hiring family members, taking on debt, selling the company, changing the dividend. Write the list. Revisit it every three years.

The fourth question is what happens to the name. If the business is sold, does the family name go with it, and on what terms. A brand licence can keep three hundred jobs and a hundred-year-old sign on Milwaukee Avenue; I have watched it happen. But only because someone asked the question before the buyer's lawyers did.

There is a fifth question, which is really the first: who is in the room when you discuss all this. My advice is everyone who owns a share and everyone who expects to. The ones who are not invited are the ones who will litigate.

None of this needs to be long. The best agreement I ever drafted was eleven pages and has survived two deaths, a divorce and a sale. It was not clever. It was clear, and it was signed by people who still liked each other, which is the only time it can be.