I'm Gonna Sue You!

A close friend of mine told me the other day, "You have a gift." She went on to say, "You see the worst of people's situations and you hold their hand, give them hope and help them through." This is true, but I’ve experienced some sleepless nights wondering how to help folks get out of some pretty ugly messes.

Case in point: Two partners established a firm after working together for ten years in a major practice. Unfortunately, they didn’t establish a solid understanding that went beyond the relationship they had at the big firm. In the beginning, it didn't matter. The work was good, the money flowed, the projects came. Then came the crash of 2009. The debt rose, the staff left and there was more than enough blame to go around. The partnership became acrimonious.

This is where I came in. I asked one simple question. “Where is the shareholder agreement? Maybe there are clauses that one of you could exercise to buy your way (sell your way) out.” Well...you probably know what the initial answer was. They had no shareholder agreement, no clearly defined roles and responsibilities and a team that didn’t know who or what to follow.

I am not an attorney, but I can testify to the significance of a shareholder agreement. Aside from obvious recitals and boilerplate, there are clauses than can and do address everything from roles and responsibilities, to the dissolution of shares as a result of divorce or death, to the criteria for new shareholders. It is the adjudicating document in the dissolution of a firm, and it should be drafted under the best circumstances, when clearer heads and emotions prevail. Without it, firms have imploded from unrealistic expectations and poor financial decisions.

Before implosion, it is never too late. If your firm doesn't have a shareholder agreement, seek legal counsel and get your house in order.

Believe it or not, as contentious as this situation has been, we are just weeks away from clearly defined roles and responsibilities, employment contracts and yes, a shareholder agreement. As for me....I can finally get some sleep. Until the next time that phone rings.

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.