When a corporation is formed, stakeholders typically consider outside factors that could impact the success of the company, examining competitors, ensuring access to reliable vendors, seeking to establish banking relationships that will allow the company to hold steady through the ebb and flow of business. In short, those with an investment in the business take the time and trouble required to protect the business against any number of external threats and potential obstacles.
It may be natural that stakeholders, especially for larger organizations, rarely consider themselves and those working by their sides as risks to be managed, but in truth, stakeholders have the potential to stall or harm a business more than most outside influences. Of course, that is virtually never a stakeholder’s intention. However, lack of clarity when entering into stakeholder relationships can derail a business and the personal and professional relationships that underlie it.
General Corporate Stakeholder Roles
For the typical corporation, the key stakeholders fall into one or more of the following categories:
- Directors
- Advisors
- Officers
- Investors
Under some circumstances, additional stakeholders come into play. Some examples include the formation of a partnership or joint venture. While each of these roles has a general definition that informs the rights and responsibilities of the stakeholder, ensuring an effective working relationship requires much more specificity.
Defining Stakeholder Roles
Some corporate roles are defined, at least to some degree, in documents other than stakeholder agreements. For example, the roles of Directors and Officers will be defined in the corporate bylaws.
Definition of Corporate Stakeholder Roles in Formation Documents
The degree of involvement of Directors and Officers can vary significantly from one corporation to another, based on the corporate structure. Some Directors and Officers are compensated and some are not. All are limited with regards to conflicts of interest. Depending on the state and the type of organization, they may be subject to varying levels of personal liability. Some bylaws assign very specific duties to Directors and Officers, while others employ open-ended terminology such as “other duties as directed by the Board.”
Depending on the language of the bylaws and the degree of active involvement of the Directors and Officers, this language may or may not be sufficient to spell out the rights, obligations and reasonable expectations associated with those roles. Depending on structure, the same may be true with regard to Advisors.
Stakeholder Agreements
Often, protecting both the stakeholder and the corporation will require a very specific stakeholder agreement. This may arise as the result of a Board delegating specific responsibilities to one or more Officers or Directors, or be associated with a stakeholder whose role is not addressed in the formation documents, such as a new investor.
In both cases, the goal of the stakeholder agreement is the same: to ensure that all parties who are affected or obligated have a clear and detailed understanding of the rights and obligations of all parties, as well as the consequences and liability associated with failure to fulfill those obligations.
Constructing an Effective Stakeholder Agreement
The key mistake that many make when forming corporations or taking on investors/partners is assuming that a general agreement will suffice and that all parties share an understanding of what is expected and what will be provided. Whether because points get lost in detailed discussions, memories differ, assumptions were made or important issues were entirely overlooked, parties rarely exit negotiations with clear and matching expectations unless the specifics are detailed in a written agreement.
Simply filling in the blanks in a form contract or adapting from a past agreement will not suffice in most cases, since every role and relationship differs somewhat and key elements may be omitted. For the protection of your business and all parties involved, a specifically-drafted stakeholder agreement should be prepared, with the assistance of an experienced attorney.
Prepare Stakeholder Agreements with the Guidance of an Experienced Corporate Lawyer
Preparing a contract that fully protects your business or your interests within the business requires more than just committing the terms discussed to writing. It also means considering and writing in terms and contingencies that may not have occurred previously. Our experienced corporate lawyers can guide you through the process, asking the right questions to ensure that the key elements are covered and then drafting clear, explicit language. Or, if you have been presented with a stakeholder agreement, our attorneys can review the document with you to ensure that you fully understand the terms and that the agreement does not leave gaps that may adversely affect you.
Build a strong relationship from the beginning with a clear, detailed stakeholder agreement. Contact KPPB LAW for more information.
