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- By Brijesh Sandhu, Solicitor in Rice Craig’s Commercial Law team, led by Scott
Hunter
Many businesses are built on trust, longstanding relationships and a good handshake. That practical approach is part of what makes our local business community strong. You know your customers, you work hard, and you rely on people to do the right thing.
That approach can work well – until it doesn’t. A delayed payment, a disagreement over what was promised or a breakdown in the relationship can quickly turn a working arrangement into an expensive problem. In our experience, it is often at this point that owners wish they had recorded the arrangement in writing from the outset.
Terms of Trade and a Shareholders’ Agreement are two of the most important documents for your business. Shareholder Agreements are often “bottom drawer” documents, meaning that they are prepared, signed and rarely looked at again; and Terms of Trade are often skimmed over. But when something does go wrong, they play a critical role in protecting your business.
Terms of Trade set out the rules between you and your customers. They deal with practical issues such as when payment is due, what happens if an account is not paid on time and how liability is managed if something goes wrong. Clear terms give you certainty and make it easier to deal with problems if they arise.
A Shareholders’ Agreement is just as important if you have more than one owner in your business (even where those owners are family or close friends). It sets out how decisions are made, what happens if someone wants to exit the business and how disputes will be handled. For example, in a small company context, one of our clients with a clear shareholders’ agreement was able to navigate a breakdown in the relationship and agree on an exit with the counterparty. Another, without any written agreement, found itself stuck in an ongoing dispute because neither owner was willing to compromise or had clear terms to rely on.
Many business owners assume these documents are only for larger companies. In reality, they are important for every business because their value is only realised when you need them.
If you would like to understand how these documents apply to your business, please get in touch with our commercial team.
Contact us
Rice Craig Barristers & Solicitors
Phone: 295 1700
Email: rc@ricecraig.co.nz
