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are contracts that determine the manner in which a company is managed. They can be in the form of a shareholder agreement, which guarantees the election of a management-controlled board of directors, or in the form of a contract between a company and its managers, which empowers the managers to operate the company for a specified term. Management agreements also include agreements between a company and outside consulting firms who are hired to perform specific management functions. These agreements often contain performance requirements, which, if not met, can cause the agreement to terminate The term "management agreements" is sometimes used by investors to refer to consulting or participation agreements they require a company to sign as a condition to funding. These agreements usually require the company to pay the investor a regular fee and give him the right to obtain financial reports and participate in management decisions. Most venture capitalists do not require these types of management agreements. Instead, they work their rights to participate in management into their financing agreements and do not charge a separate management fee. Whenever a separate management fee is required by an investor, management should consider it as a part of its cost of capital. See: Consulting Agreements, Financing Agreements, Pricing, ROI (Return on Investment). |
