Why do I need a Term Sheet for Shareholders' Agreement?
This Term Sheet is a handy, cost-effective tool for shareholders in a small Kiwi company to nut out the key rights, responsibilities and expectations to be included in a shareholders’ agreement.
The Term Sheet is designed to be a guide and starting point for negotiations, helping the shareholders reach a more detailed and formal shareholders’ agreement. It provides a framework for discussing and refining the key terms.
You don’t have to use a Term Sheet before entering into a shareholders’ agreement but ensuring the shareholders are generally on the same page from the get-go can save loads of time, legal fees and disruptive protracted negotiations down the road negotiating the shareholders’ agreement, as the groundwork is already done. If you're ready to jump straight into a shareholders' agreement, check out our Shareholders' Agreement, and our Shareholders' Agreement and Constitution Bundle.
Using our Term Sheet should help identify potential issues, misunderstandings, and risks early on in the process. It can also gauge the shareholders' commitment and alignment on the business's direction. It's much better to find out upfront than after you’ve spent a fortune on lawyers!
When you purchase our Term Sheet, we'll provide you with a 40% discount code to use on your subsequent purchase of a Shareholders' Agreement or Shareholders' Agreement and Constitution Bundle.
What’s in this Term Sheet for Shareholders' Agreement?
The terms are non-binding, meaning they do not create any legal rights or obligations on the shareholders and are to be used only for discussion and negotiation purposes. A binding agreement will only exist once the shareholders have signed a legally binding shareholders’ agreement. However, there are a couple of key exceptions where the terms are binding – confidentiality (information shared between the parties must be kept secret), how legal costs relating to the term sheet and shareholders’ agreement will be met, and that the term sheet is governed by NZ law.
The Term Sheet sets out all the key terms of a typical shareholders’ agreement for a small company, including director appointment rights, restrictions on the transfer of shares, restrictions on the issue of new shares, funding, how key decisions are made, the contributions expected from each shareholder, roles and remuneration of any shareholders that are employees in the business, dividend policy, circumstances in which a shareholder will be forced to sell its shares, and optional non-competition and non-solicitation restraints.
It is not designed for a potential investment by a new shareholder.
How long will it take to create my document?
10 minutes – less time than doing the coffee run! During the Q&A you can save your progress to come back later, or repeat the Q&A to change an answer or produce a new version of a document.
What information do I need to complete the Q&A?
- The names and contact details of the shareholders
- Shareholding details
- How many directors each shareholder can appoint (and the names of those directors that have been appointed)
- How the company will be financed, and if by shareholder loans, what the terms of those loans are
- The initial contributions made by each shareholder to the company
- Whether the shareholders will work in the business as employees, and if so, details of their roles and remuneration
- Whether the shareholders must first offer their shares to the other shareholders before selling to anyone else, and if so, the price that applies
- Whether a discount will be applied to the price payable to a shareholder in the event they leave the company under unfavourable circumstances
- How often and how much of the company’s profits will be distributed as dividends
- Non-competition and non-solicitation terms – will the shareholders be prevented from competing with the business or encouraging clients or staff to terminate or reduce their dealings with the business for a fixed time (and in a certain area) after completion?
- Timetable for signing the shareholders’ agreement
What if I need help?
We’d love to help. Just contact us at hello@onyourterms.co.nz and we can either help over email or jump on a call.
Your document will be downloadable in MS Word, so you can make changes if you like (and add branding). Also, our legal partner, Luminate Legal, can provide legal advice for a fixed price if you’d like it.
What do I do once my Term Sheet for Shareholders' Agreement is created?
Schedule 2 to the agreement contains a list of decisions relating to the company that cannot be made without 75% majority of the directors, or 75% majority of the shareholders or unanimous approval of the shareholders. The shareholders need to carefully review this Schedule and decide whether any of the types of decisions listed need to be moved into a different approval category. Following that, the term sheet is ready to be used as part of negotiations and then signed.
What other names is a Term Sheet called?
A term sheet is also known as a Memorandum of Understanding, MOU, and Heads of Agreement.
Other helpful information:
- Check out our blogs: Why Business Prenups (aka Shareholders' Agreements) are Essential!, Your Top 10 Questions on Shareholders' Agreements
- You may also find these bundles or documents useful for your business: Term Sheet for Sale and Purchase of Shares (one minority shareholding), Agreement for Sale and Purchase of Shares (one minority shareholding), Share Transfers and Company Approvals, Shareholders' Agreement,
- Check out our FAQs here
If you’re not satisfied with your purchase of this product for any reason, let us know why within 10 days of your purchase and we’ll work with you to make sure you’re happy, including giving you a full refund if necessary.
Disclaimer: On Your Terms was created to provide fast, easy and affordable access to legal information and documentation. We are not a law firm and do not provide legal advice. The information and documents we provide are of a general nature, designed for common situations, and may not be suitable for your needs or circumstances. If you need legal advice, we have a network of specialist law firm partners able to help you here.