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Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock warrant purchase agreements

Stock Warrant Purchase Agreements

What is a stock warrant?

According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is sold is referred to as the exercise price or strike price.

In this sense, a stock warrant gives holders the right to buy a certain amount of company stocks at a fixed price until the expiration date, receiving newly issued stock from the company.

The goal of a stock warrant is to increase the company’s capital while sweetening the deal for potential investors. The appeal is that if the issuer’s stock increases above the warrant’s price, the investor can redeem the warrant, and buy shares at the lower warrant price.

An example of this is a company which issues a bond with warrants attached. The holder gets a $500 face-value bond plus the right to purchase 50 shares of company stock at $10/share within 10 years. The $10/share is the strike price. If the stock rises over $10 within the time period that the warrant is available, this is a good investment opportunity.

Key points about stock warrants

  • A warrant is exercised once the holder tells the issuer they intend to purchase the underlying stock. When a warrant is exercised, the company issues new shares of stock, so the overall number of outstanding shares will increase.
  • The exercise price is fixed shortly after issuance of the bond.
  • A warrant’s premium means how much extra you will need to pay for the shares when purchasing through the warrant, rather than regularly (such as in an exchange or from another investor).
  • You need to take into consideration the conversion ratio. The conversion ratio is the number of warrants that are needed to buy or sell one stock. For example, if the conversion ratio to buy a stock is 5:1, this means the holder needs 5 warrants to purchase one share.
  • Warrants have an expiration date, when the right to exercise no longer exists.

Warrants change depending on where you are. An American-style warrant, for example, allows the holder to exercise at any time before it expires, whereas a European-style warrant requires the holder to keep the warrant and only execute on the expiration date.

Kinds of warrants

Detachable and Non-Detachable

Holders of detachable warrants can sell the warrants without selling the bonds or stock to which they were originally attached. That means that when a warrant is attached to a bond or stock, the holder can sell the warrant but still and keep the bond or stock. This flexibility makes detached warrants much more attractive. This may be especially important when warrants are attached to preferred stock.

Sometimes, investors won’t start receiving dividend payments from preferred stock as long as the stock has an attached warrant. In that case, if the warrants are detachable, holders may want to sell them and just keep the stock. Holders of non-detachable warrants can only sell the warrants when they sell the attached bonds or stock. As a note, these are sometimes also called “wedded” warrants. Non-detachable warrants are issued without any bonds or stocks accompanying them.

Covered Warrants

These are issued by financial institutions, so there are not any new stocks issued when the covered warrants are exercised. The warrants are covered because the institution either owns shares or can acquire them easily.

Call and Put Warrants

A call warrant allows the holder to buy shares from the share issuer. A put warrant allows the holder to sell shares back to the issuer.

The primary difference between a call warrant and a put warrant is that a call warrant will buy a specified number of shares from the company at a future date for a set price. A put warrant is a representation of the equity value that the buyer can sell back to the issuing company in the future for a set price.

Trading Warrants

Exercising a warrant is not the only way to make money with warrants. Investors can also buy and sell warrants.

The minimum value of a warrant is the difference between the current value of the underlying security on the market and the warrant’s strike price. This is the profit that warrant holders will receive if they exercise their warrants at the current time. Warrants that are trading on an exchange, however, may sell for a premium price greater than the minimum value if traders expect the price of the underlying security will rise in the future – just like basic supply and demand and predictions of the market. However, the premium will generally shrink as the expiration date approaches.

Difference between stock warrant and stock options

What is a stock option?

A stock option is a contract in which the holder gets the right -but not the obligation- to buy or sell stock at a specific price, prior to a specific expiration date.

Options are purchased by investors when they expect the price of a stock to go up or down (depending on the option type). For instance, if a stock is worth $40 today, and an investor believes the price will rise to $50 next month, he can purchase a $40 call option today, which would give the investor the right to purchase the stock at that price prior to the expiration date. Then the investor can turn around and sell it for $50 making $10 in profit less the cost of the option, referred as “premium”.

Differences between the two figures

A stock warrant differs from the stock option mainly in two aspects:

  1. A company issues its own warrants, and
  2. The company issues new shares for the transactions

A company may issue a stock warrant if they want to raise additional capital from a stock offering. If a company sells shares at $100 but a warrant is just $10, more investors will exercise the right of a warrant. These are a source of future capital.

Stock options on the other hand are listed on exchanges. When stock options are exchanged, the company itself doesn’t make any money from those transactions.

Also, stock warrants can last up to fifteen years, while stock options usually go for a couple of months to a couple of years at best.

In this sense, for long-term investments, stock warrants may be the way to go, while for short-term investments, stock options have the upper hand.

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What should you include in your Board Member Agreement

Usually, any good Board Member Agreement would include:

  • Services and consideration. In which it would be included the services the 51 percent member (manager) would agree on.
  • Units of the company. How many units have been issued to the manager, what’s the cost of each unit and conditions regarding the possible causes of repurchasing of them.
  • Confidentiality. What constitutes confidential information, limits the manager has using this information and the obligation to return the confidential information the manager possesses to the company in case of termination of the agreement.
  • Ownership of Intangible Property. Determining how the company is going to treat all inventions or creations conceived in whole or in part by the manager that relate in any matter to the business.
  • Return of Company’s Property. The manager’s obligation to return company’s property once its role as board chairman comes to an end.
  • Conflicting Obligations. The obligation of the manager to not engage in any other obligation or agreement that conflicts with the interests of the company.
  • Terms and Termination. Causes for which the board member agreement would terminate.
  • Impossibility of Assignment. Impossibility for the manager of assigning the board member agreement or any other agreement without the consent of the company.

If made right, a good Board Member Agreement would be able to stop any kind of future confrontation thus establishing clear boundaries to corporate owners. If your company doesn’t have a Board Member Agreement yet, you should contact us, so we can work with you and help you figure out what your best options are.  

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Thomas Howard

Thomas Howard

Real Estate Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail sales will not begin until 2024.

In this sense, you won’t be seeing dispensaries right away, it will take a while before you are able to open one or acquire weed from them. The General Assembly still has a lot of work to do in order to establish the regulatory framework.

Virginia has four medical dispensaries, open for patients who are registered for medical use, but they can’t sell to all adults for the time being.

The Virginia Cannabis Control Authority is the entity that’s authorized to regulate every detail regarding cultivation, production and sale.

In this sense getting the right cannabis lawyer that knows the legislation, risks and trends associated with the industry is vital in order to ensure maximum success.

A cannabis lawyer must have expertise helping individuals navigate processes like civil litigation, transactional law, trademarks and -in general- business litigation.

So, if you want to get a Marijuana Business License in Virginia, here’s what you need to have in mind when hiring a Virginia cannabis lawyer.

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What can a Virginia cannabis lawyer help you with?

A cannabis lawyer in Virginia can assist with business creation and launch, marketing and advertising, packaging and labeling, banking and funding, taxation, and patents and copyrights for new strains or products.

Licensing, on the other hand, is critical. Cannabis cultivators, extractors, dispensaries, processors, and distributors are just a few of the businesses that rely significantly on permits to operate.

As early as 1979 Virginia passed legislation allowing the recommendation of cannabis for glaucoma or the side effects of chemotherapy. Nevertheless, the medical cannabis law was non-functioning because of cannabis’ status as a Schedule I substance under the CSA.

It wasn’t until 2015 that an affirmative defense against a possession charge was created by signing HB 1445 and SB 1235, allowing the possession of CBD and THC-A oil to patients who have a doctor’s recommendation for those substances for the treatment of epilepsy.

Later, in September 2018, the Virginia State Board of Pharmacy approved the application for five companies to open medical cannabis dispensaries across the state.

Even though the market isn’t active yet, a November 2020 state-led report found that a mature adult-use market in Virginia could be worth $628 million to $1.2 million annually.

In order to get into the business you need to maneuver through the regulations successfully, and for that you need the experience of a cannabis lawyer.

Every step of creating a cannabis company involves considerable maneuvering, and licensing in such a strictly regulated industry makes an expert cannabis lawyer’s regulatory skills crucial.

Further, a Virginia cannabis lawyer can be of help with advertisement and applying for trademarks and patents, which is of major importance when you’re starting a business in order to establish your brand.

Further, you’d probably need a good cannabis business plan to go along with your license application.

What should you look for when hiring a Virginia cannabis lawyer?

It is critical to find proven experience in the industry while looking for a reputable cannabis attorney for your startup cannabis organization. Despite the fact that cannabis business attorneys are relatively new to the field, there are cannabis lawyers with expertise in the hemp and cannabis industries.

You should look for cannabis attorneys who are knowledgeable not only about the local and state laws, but also about federal law.

Furthermore, the best cannabis attorneys will be able to provide contacts and advice in the cannabis industry, as well as participate in lobbying and legislative activities.

This allows you and your company to remain current on cannabis, marijuana, and hemp developments, as well as changes in the law.

Cannabis licensing, regulatory enforcement, and administrative cases can all be handled by a cannabis lawyer.

They can also help with everything from company formation to mergers and acquisitions to risk management and dissolution.

So, in short, you should be wary of the attorney’s credentials and experience.

Make informed decisions to avoid costly errors: Collateral Base’s cannabis and CBD industry attorneys represent a wide range of clients in the marijuana and hemp sectors, as well as the CBD market. We continue to be involved in cannabis-related policy activity and continue to represent hemp and legal cannabis businesses.

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Thomas Howard

Thomas Howard

Real Estate Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and federal marijuana legalization

Last years have been very important for cannabis legalization. Currently, fifteen states, two territories and the District of Columbia have legalized cannabis for adult recreational use. New York is the most recent state to legalize cannabis, which was passed in late March 2021, during New York’s 2021 session. 

And the road ahead seems promising for states Cannabis legalization, with states like Virginia or New Mexico that have proposed the implementation of recreational marijuana legalization bills that would establish a regulated commercial market. More and more states are taking the initiative to decriminalize or directly legalize recreational marijuana. 

However -on the other hand- federal legalization doesn’t look so favorable. Recently, Michigan urged Congress of the United States to clarify its position on the legality of marijuana under the Federal Controlled Substances Act. 

Under federal law -unfortunately- marijuana is still a Schedule I illegal substance. And considering that there’s a 50-50 split in the 117th U.S. Congress, federal legalization probably won’t be happening anytime soon, as the Republicans would be able to repeal it by filibustering.

What’s a Filibuster?

A Filibuster, according to the United States Senate’s glossary, is an “informal term for any attempt to block or delay Senate action on a bill or other matter by debating it at length, by offering numerous procedural motions, or by any other delating or obstructive actions”.

The most common form of filibuster occurs when one or more senators attempt to delay or block a vote on a bill by extending debate on the measure. The Senate rules permit a senator, or a series of senators, to speak for as long as they wish, and on any topic they choose, unless “three-fifths of the Senators duly chosen and sworn” (currently 60 out of 100) vote to bring the debate to a close by invoking cloture -AKA: a motion to end a debate- under Senate Rule XXII.

However, today -even though the filibuster is more common than ever- it is not necessary for a senator to talk for hours to maintain a filibuster. Nowadays, all it takes to perform a filibuster is for a senator to state his intention to launch a filibuster against a bill or motion. 

Immediately after the senator’s intention is stated, a vote has to be taken, and only after getting at least 60 votes any action could be taken on the matter, getting less than 60 votes would mean the bill or motion got blocked. 

It can be described -basically- as a move in which senators demand a supermajority to cut off debate and move to an actual vote.

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History of the Filibuster

Being able to block a measure through extended debate was generated as a side effect of an 1806 rule change. 

This tactic was infrequently used during much of the 19th and 20th centuries. In 1970, the Senate adopted a “two-track” procedure to prevent filibusters from stopping all other Senate business and thus . 

The minority then felt politically safer in threatening filibusters more regularly, which became normalized over time to the point that 60 votes are now required to end debate on nearly every controversial legislative item.

Laws that expressly restrict the time for Senate discussion, such as the Congressional Budget and Impoundment Control Act of 1974 -which established the budget reconciliation mechanism- have been used to limit the procedure. 

Changes in 2013 and 2017 now require only a simple majority to invoke cloture on nominations, although most legislation still requires 60 votes. Although one or more senators can still hold the floor for a prolonged period of time on occasion, often without the Senate leadership’s knowledge. 

However, since the Senate’s ability to act eventually depends on whether there are enough votes to invoke cloture and proceed to a final vote on passage, these “filibusters” generally only cause small delays and have little influence on the outcome.

Filibustering was actually created by accident in 1806. In 1789, the first U.S. Senate adopted rules allowing senators to move the previous question by simple majority vote, which meant ending the debate and proceeding to vote. 

At that time, Vice President Aaron Burr argued that the previous-question motion was redundant, had only been exercised once in the preceding four years and, therefore, it should be eliminated, which was done in 1806.

These changes on the Senate’s rules made filibustering possible, as it didn’t create another alternative to terminate the debate.

The senate allowed the tactic to be used until more than a century later, in 1917, when -during World War I- a rule allowing cloture of a debate was adopted by the Senate after the urging of President Woodrow Wilson, after a group of 12 anti-war senators managed to kill a bill that would have allowed Wilson to arm merchant vessels in the face of unrestricted German submarine warfare. 

From 1917 to 1949, the requirements for cloture were two-thirds of the senators voting. During this period of time, there were times where politicians recited Shakespeare and read out recipes for hours at a time, some of them occupying as long as 15 hours of debate. 

In 1949 the Senate made invoking cloture even more difficult by requiring two-thirds of the entire Senate membership to vote in favor of a cloture motion. Then, ten years later, in 1959 -anticipating more civil rights legislation- the Senate restored the cloture threshold to two-thirds of those voting.

In 1970 the Senate introduced a “two-track system”, which would allow the majority leader -with unanimous consent or the agreement of the minority leader- to have more than one main motion pending on the floor as unfinished business. 

Under this system, the Senate can have two or more pieces of legislation or nominations pending on the floor simultaneously by designating specific periods during the day when each one will be considered.

Filibusters became easier for the minority to retain as a result of this change. This also led to the modern era in which an effective supermajority requirement exists to pass legislation, with no practical requirement that the minority party actually hold the floor or extend debate.

In 1975, the Senate revised its cloture rule so that three-fifths of sworn senators (60 votes out of 100) could limit debate, except for changing Senate rules which still requires a two-thirds majority of those present and voting to invoke cloture. 

However, by returning to an absolute number of all Senators (60) rather than a proportion of those present and voting, the change also made any filibusters easier to sustain on the floor by a small number of senators from the minority party without requiring the presence of their minority colleagues. 

This further reduced the majority’s leverage to force an issue through extended debate.

Exceptions for the Filibuster

There are some bills that are not subject to the effective 60-vote requirements. These are bills that -under provisions of law- have a limited time for debating them. These limits on debate allow the Senate to hold a simple-majority vote on final passage without obtaining the 60 votes normally needed to close debate:

  • Budget reconciliation. Expedites the passage of certain budgetary legislation.
  • Trade promotion authority. Gives authority to the President to negotiate international trade agreements in a “fast track”
  • Congressional review act. Allows Congress to review and repeal administrative regulations adopted by the Executive Branch within 60 legislative days.
  • National emergencies act. Formalizes the emergency powers of the President.
  • War powers resolution. Generally, requires the President to withdraw troops committed overseas within 60 days, which the President may extend once for 30 additional days. 

How to end a Filibuster

As of today, according to the rules set for debate in the United States Senate, 60 votes are needed to end a filibuster. Once the debate is closed, senators can move forward with consideration of the measure, amendments or final votes. 

The issue is that, nowadays, with the Congress split in half, this isn’t possible, as the Republicans are unlikely to vote against the filibuster. And what’s even more, Democrats would have to tread lightly this session, to ensure they don’t upset the Republicans, as doing so could cost any chance at passing even the smallest reform. 

How could the Democrats kill the filibuster and what’s the “Nuclear Option”?

Another option that the Democrats have in order to pass federal legalization would be the so-called “nuclear option”.

The “nuclear option” is a parliamentary procedure that allows the Senate to override a standing rule of the Senate, such as the three-fifths vote rule to close debate, by a simple majority.

The option is invoked when the majority leader raises a point of order that contravenes a standing rule. The term “nuclear option” is an analogy to nuclear weapons being the most extreme option. 

The “nuclear option” would allow the Senate to override one of its standing rules, including the 60-vote rule to close debate, by a simple majority (51+ votes or 50 votes with the Vice President casting the tie-breaking vote), rather than the two-thirds supermajority normally required to amend the rules. To this day, the “nuclear option” has never been used to kill the filibuster. 

In this sense, it would be possible for the Democrats to change the rules for the filibuster. However, Senate minority leader, Mitch McConnell doesn’t want the filibuster to die, and has decided to not negotiate with Democrats until they agree to keep it in play. 

In the current state of the Senate, where there’s a 50/50 division, it would be fairly complicated to change these rules, as the Senate would need -at least- 51 votes, which means that every single Democrat would need to be on board to change the rules, which can be a bit tricky, as there are some of them who have -openly- been in favor of filibuster in the past.

What’s even more, let’s say that the Democrats find a way to eradicate the filibuster and start passing bills on marijuana legalization. According to Sen. McConnell, this could lead to a situation where any marijuana reform bill passed under Democratic control would just end up tossed off the books once Republicans take back the power.

When Republicans next control the government, we’d be able to repeal every bill that had just been rammed through. But a few years later, Democrats would try to flip it all back. So instead of building stable consensus, we’d be chaotically swapping party platforms.” – Sen. Mitch McConnell

From this point of view, it wouldn’t be the smartest idea to kill the filibuster as it would possibly take away the possibilities of legalizing cannabis on a federal level in an effective -and durable- way. 

It could take away the possibilities of passing any kind of reform the Biden administration would want to pass.

And with the landscape being the way it is, It seems like federal legalization won’t be occurring any time soon.

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Thomas Howard

Thomas Howard

Real Estate Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

Board Member Agreements & How to Control Corporate Owners

Board Member Agreements & How to Control Corporate Owners

Board Member Agreements & How to Control Corporate Owners

Board Member Agreement

Board Member Agreements & How to control Corporate Owners

In the Cannabis Industry, having the right partners is essential. In practice, a lot of times you will be looking at a “49/51 deal” in which one of the partners has a 51 percent and there’s a second partner –or a number of partners- that share 49 percent ownership of the company.

A partnership is a risky business endeavor because partners can fail to meet their obligations to the organization, which can cause relationships to sour. A partner who owns 51 percent of a company is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business.

In this sense, the most important things you’d have to consider about getting into these partnerships can be boiled down to two specific sections: economics and control.

The economics section can be understood, in a fairly simple way, as how much money both parts of the partnership make. Usually –as expected- the person with a higher percentage of ownership will earn more, although this can be leveled through bonuses, salaries, etc. This part is fairly straightforward and will highly depend on the negotiation skills of the partners.

The control section is, on the other hand, fairly complicated. But any business partnership needs to tackle this aspect headon in order to find any success. Long story short: you are never going to have a successful business if you don’t get the nuances of controlling the company right, in a way that works for you.

How can a Board Member Agreement help you gain control over a business

A Board Member Agreement is a written contract setting forth the organization’s expectations for Board members. These contracts help setting clear expectations for the board members.

Common Board Member Agreement expectations include the following:

  • Attend at least X% of board meetings
  • Participate in all Board meetings and Board committee meetings using fair, independent judgment, and due care in conducting the business of organization
  • Recuse yourself from any discussions or votes on matters that amount to a conflict of interest with organization
  • Be loyal to the organization, always exercising Board powers in the primary interest of organization, and not primarily for the interest of yourself or others
  • Keep all organization matters confidential
  • Avoid all political campaigns in the name of organization
  • Be available for phone consultation
  • Serve on at least one organization committee
  • Attend at least one signature organization event
  • If appointed to an officer position, fulfill officer duties as stated in the bylaws.
  • Read financial reports and other corporate documents
  • Read reports on corporate programs, finances, and management
  • Direct all media inquiries to the Executive Director or party designated by the Board on a particular matter
  • Promote the organization to your contacts and on social media
  • Communicate to Chair when if you are no longer able to fulfill these duties. 

Board contracts should be customized to reflect the organization’s core values, address any areas that may cause friction, and memorialize any fundraising expectations.

Naturally the partner with a higher percentage of ownership will be able to -pretty much- run the business anyway they want. They can make decisions including, but not limited to:

  • The direction the business will take.
  • Prices for the company’s products or services.
  • Compensation and benefits payable to employees and owners.Entering into a contract unfavorable to the company but to the advantage of one or more of the owners.
  • Selling the company altogether and at what price.
  • Demoting, firing, or decreasing other owners’ pay.

In this sense, a 51/49 deal comes down to trust. With a 51/49, you really have to trust – particularly if you’re the 49 percent person – that the 51 percent is going to hear you. That’s a massive degree of control for what is ostensibly two peers being in business together. You really have to trust that that person’s going to treat you right and handle things correctly.

It is said that good fences make good neighbors. So do good contracts. The time to work out these details is before problems arise, when everyone still has stars in their eyes and is operating with a high degree of trust and good faith.

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business.

What should you include in your Board Member Agreement

Usually, any good Board Member Agreement would include:

  • Services and consideration. In which it would be included the services the 51 percent member (manager) would agree on.
  • Units of the company. How many units have been issued to the manager, what’s the cost of each unit and conditions regarding the possible causes of repurchasing of them.
  • Confidentiality. What constitutes confidential information, limits the manager has using this information and the obligation to return the confidential information the manager possesses to the company in case of termination of the agreement.
  • Ownership of Intangible Property. Determining how the company is going to treat all inventions or creations conceived in whole or in part by the manager that relate in any matter to the business.
  • Return of Company’s Property. The manager’s obligation to return company’s property once its role as board chairman comes to an end.
  • Conflicting Obligations. The obligation of the manager to not engage in any other obligation or agreement that conflicts with the interests of the company.
  • Terms and Termination. Causes for which the board member agreement would terminate.
  • Impossibility of Assignment. Impossibility for the manager of assigning the board member agreement or any other agreement without the consent of the company.

If made right, a good Board Member Agreement would be able to stop any kind of future confrontation thus establishing clear boundaries to corporate owners. If your company doesn’t have a Board Member Agreement yet, you should contact us, so we can work with you and help you figure out what your best options are.  

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Thomas Howard

Thomas Howard

Real Estate Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer

Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer

Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens