What do you mean your restaurant doesn’t have a shareholders’ agreement?

Running a restaurant is hard work. Granted, I have zero experience operating a restaurant, but a lot of my clients do, and as a lawyer to companies operating in the foodservice industry I know how much blood, sweat and tears restaurant owners pour into their businesses day in and day out, not to mention the ungodly hours they keep and the personal lives they sacrifice in the process.

I suppose, then, that it would make sense to take every step possible as a business owner to protect your investment. Yet I continue to be amazed by the number of restaurants, new and established, single-unit and multi-unit, successful and struggling, that have not yet taken a critical step and entered into a shareholders’ agreement among its owners. I cannot say that I am entirely surprised, given the aforementioned time limitations which restaurant owners confront every day – but I do remain amazed.

Being a franchise lawyer can be fun work – it is invigorating and energizing to be on the receiving end of a phone call when a restaurant owner has decided to take the next step and expand. But as a lawyer, I also get called often when something has gone wrong, and business partners having disagreements is nothing new, nor is it unique to the restaurant industry.

But think of a shareholders’ agreement as a pre-nup. At the start of a business relationship, as with a marriage, there is bound to be a honeymoon period – a time during which the partners are eager, excited, happy and willing to overlook small differences of opinion. But pre-nuptial agreements are not signed to cover the good days. They exist so that if something goes wrong, there is no confusion about what steps need to take place. A shareholders’ agreement is no different. Partners are going to argue – some often, some infrequently, some about substantive issues, some about superficial ones. But if everybody does start to argue, it is far more difficult to try and set the ground rules for resolving that dispute than it is at a time before the dispute has even arisen.