If you're starting a company, one of the biggest challenges ahead of you is managing your shareholders.
Any time you offer shares in your organization, whether it’s through a crowdfunding campaign or startup equity rounds, you're opening the doors to new hurdles and opportunities alike.
Staying In Control Of Your Startup
Initially, when you have an idea for a business, you go to friends or family to ask them to invest in that idea. However, if your business takes off, there's a possibility that your startup will attract and gain investors.
If you take on a lot of investors, it becomes essential to manage them because each of them may have different rights and responsibilities. This is why many companies opt for all-in-one equity management platforms like Cake Equity to easily track and report changes in documents, communicate with stakeholders, and stay compliant with local regulations.
But if you're just beginning, how will you handle all of these responsibilities? Here are some strategies you can follow:
1. Educate Yourself About The Types Of Shareholders
The most important thing you have to keep in mind when managing stakeholders is they all have different roles. This means you should respect their rights and responsibilities accordingly. In order of priority, here are the two common types of shareholders:
- Shareholders owning the most significant share in the startup are called majority shareholders. They usually have the most voting rights, which can make or break operational decisions. They also often will include you as the founder or any of your descendants. They often want to have a say in your business, like when replacing executives and board members.
- On the other hand, there are minority shareholders who own less than 50% of your startup company. They can be your employees or other investors. Although they may not be essential for big decisions, they're still valuable as their votes will be tied to their own self-interest.
It's always recommended to consult with these shareholders regularly and take their feedback into account when making decisions. Even if they don't have much power, everything that happens in your company can affect them. Thus, you may want to keep them in the loop on their investment.
2. Have A Pre-Negotiation Meeting
The next step in managing your shareholders is to discuss the basic terms that’ll govern their buy-in. Start with deciding when and where this’ll take place. Also, spend enough time with each shareholder to discuss all issues at hand without distractions. This step can be an excellent way to know whether your future partner is serious about the business or not.
While you don't necessarily need a lawyer in this meeting, it's always helpful to get some legal advice so nothing falls through the cracks. It also helps to know the kind of documents to prepare before the meeting so you can discuss matters without wasting too much time.
3. Get Agreements In Writing
This may seem obvious, but it's important enough to be worth mentioning. Whenever you have a legal agreement with an outside party, it's essential to get everything in writing to avoid misunderstandings.
You may include shareholders’ roles and responsibilities within your company in the document you’ll create. Remember that your shareholders should know what they can expect from you and vice versa. You should also mention in the document what each shareholder is responsible for and how they’re held accountable for their actions. If not, you run the risk of creating problems or arguments that may hurt your business. You can also use these agreements as a reference for future meetings.
4. Maintain Open Communication
Once you’ve negotiated successfully, make sure to establish and maintain an open communication channel between yourself and each shareholder. Be as transparent as possible with all of them. Make sure they know how their investment is doing and any changes in business strategy. This can help avoid miscommunication between you and your investors, which could result in future problems. Also, if there are disagreements, discuss them with all shareholders instead of taking unilateral action. This way, everyone is on the same page, and no one feels ignored or discriminated against.
You may also want to hold regular shareholder meetings. Even if some of your investors can't make it all the time, they still need to know that you’re keeping in regular contact. And make it a habit to provide the notice of shareholder meeting well in advance.
Lastly, be sure to implement the resolutions outlined in the meeting, even if not all shareholders agree with them. Otherwise, there could be disagreements about what happened or who voted what during the meeting.
One last bit of advice on managing stakeholders is understanding what your investors want out of your business. If you can't provide them with the returns they expect, small conflicts could trigger big problems in your company over time. If this does happen, remember that it's always better to have partners than have none, so try to develop a solution that works for all parties. However, if all else fails and disagreements become too frequent, you may want to consider letting go of one or more of them.