Shareholders Agreement
Having a shareholder that you know you can trust is crucial for your business’s success; therefore, starting a business with family or friends can be exciting for all involved. You might assume that because you have implicit trust in your shareholders, there is no need to establish a formal shareholders’ agreement, or you might worry that requesting one could strain your relationship.
However, it’s essential to recognise that a shareholders’ agreement can provide valuable stability to the business, especially in worst-case scenarios like a partnership breakdown or a falling out. Without such an agreement, you risk facing the challenging breakdown of a friendship alongside a costly and acrimonious legal dispute related to the business.
A thoroughly considered and well-drafted shareholders’ agreement can act as a safeguard and give you and your fellow shareholders more protection against these scenarios.
Although some people with a shareholders’ agreement will never need to rely on its terms, there will be many more cases where shareholders wish they had taken the time to put a proper agreement in place.
Suppose you are going into business with others and are looking for confidence about your future relationships with them. In that case, consider putting a shareholders’ agreement in place to protect both the business and your investment in the company. This does not have to be registered at companies house and is private between the shareholders.
Why have a shareholder’s agreement?
A shareholder’s agreement aims to protect the shareholders’ investment in the company, establish a fair relationship between the shareholders, and govern how the company is run and what will happen if something goes wrong.
The shareholder’s agreement will:
- Set out the shareholders’ rights and obligations.
- Regulate the sale and transfer of shares in the company and deal with succession planning.
- Describe how the company is going to be run.
- Provide an element of protection for minority shareholders and the company.
- Define how important decisions are to be made.
The shareholders’ agreement will contain specific, important, and practical rules relating to the company and the relationship between the shareholders. This can be beneficial both to minority and majority shareholders.
It is much easier and cost-effective to put in place a shareholder’s agreement at the outset of any relationship than trying to sort out a dispute when something has gone wrong, and the relationship has ended or is coming to an end.
Our team of solicitors can offer you legal advice with any of the following:
