Why You Should Care About Minute Books & Shareholder's Agreements
Clients usually could not care less about minute books and shareholders agreements. I keep telling them that they are important, but they don’t always seem to believe me. Here are two recent stories that prove my point:
Is your minute book in good shape?
Client number one is a good-sized business with several offices in Canada and the U.S., a complex corporate structure and a number of minority shareholders. For personal reasons, the owners wanted to sell the company quickly. They received an offer which was only valid if the transaction could be competed within a few weeks, as opposed to the normal time-frame of several months. The minute books were completely up to date, there were good shareholders agreements in place with the minority shareholders, and it was possible to complete the transaction quickly. Without the minute books and shareholders agreements in place, the transaction would likely not have closed at all and the window to sell the business on attractive terms would have been missed.
Client number two is also a good-sized business with three shareholders. The corporation has been in existence for about 40 years. An offer for the shares of the company was received but could not even be entertained because the minute book was in such disarray that no lawyer would be able to provide an opinion as to who owns the shares of the company. Based on the minute book, it would appear that the three shareholders who think that they own an equal number of shares are not in fact equal shareholders, and that there are two other shareholders who would likely be surprised that they are shareholders at all. With time and quite a bit of money, the situation will be likely sorted out, but only because everyone is friendly, including the representatives of several deceased shareholders. In the meanwhile, the shares of the company cannot be sold.
Pallett Valo LLP
Photo by Maureen T. McKay