Do I need a Shareholder's Agreement? Lessons from a burger bun fight
Putting in place a Shareholders' Agreement when you start a business can significantly reduce the risk of costly disputes between business partners, as the recent case between the owners of Grill'd, a popular Australian burger chain, demonstrates.
The owners of this business recently ended up in the Federal Court of Australia in a dispute over their shareholding in the company.
The first Grill'd store was established in 2004 by Simon Crowe together with friends Simon McNamara (a former chief executive of Boost Juice) and Geoff Bainbridge (an ex-Fosters executive). Media reports put the value of the Grill'd empire at $300 million having expanded to more than 100 stores across Australia in 12 years. McNamara and Crowe were reportedly childhood friends whilst Crowe and Bainbridge had met at Fosters in 1999 and were close friends McNamara even acted as MC at Crowe's wedding.
Crowe and Bainbridge bought McNamara out of the business in 2011 following McNamara's involvement in Spud Bar, another fast food chain.
Where it all went wrong
The relationship between Crowe and Bainbridge apparently progressively soured over the years, most recently over Bainbridge's investment in Pizza Religion, a company Crowe viewed as a competitor to Grill'd.
Bainbridge, who holds 25 percent of the company, sought an oppression order from the Court claiming he was denied access to the company's books and records. He also sought to have the company's CFO and director removed from the company. He alleged that Crowe breached his duties as a director and used company staff and resources to fund his purchase of the chocolate company, KoKo Black.
Crowe's counter-claim sought an order from the court forcing Bainbridge to sell his minority share in the company on the basis that their working relationship had deteriorated to the extent that it was impossible for the pair to work together.
The Grill'd dispute highlights the importance of having a Shareholders' Agreement in place even where a business venture involves two commercially sophisticated individuals. A Shareholders' Agreement will often contain a non-compete clause which may have prevented the owners from investing in rival businesses, will usually contain a description of the business of the company and the purposes to which company funds and resources may be put and will usually provide a mechanism for dispute resolution which would mean that the shareholders could have avoided resorting to court proceedings to resolve their issues.
As the Grill'd example demonstrates, even longstanding friends can fall out over business ventures. If you are contemplating investing in a new or existing business venture with other shareholders and wish to obtain advice on whether your business arrangement requires a Shareholders' Agreement, talk to your legal adviser.