A business owner’s guide to setting up a shareholders’ agreement
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Like any good relationship, even the best business partnerships can sometimes go awry. While it’s not a situation you want to find yourself in, it’s always best to be prepared.
Sarah Miles, specialist commercial and company lawyer at HRJ Foreman Laws Solicitors, explains all you need to know about setting up a shareholders’ agreement and how it can help you safeguard your business for the future.
Q: What is a shareholders’ agreement?
A: A shareholders’ agreement is a private contract between the shareholders of a business. It can be used for any sized company where there are two shareholders or more and will be written specifically for your business. It will outline how major decisions will be made and contain instructions that protect the business.
Q: Why do I need a shareholders’ agreement?
A: If you operate through a limited company with fellow shareholders, it is important to have a comprehensive shareholder agreement. It will protect you from scenarios, like a disagreement over a major change to the business, if you fall out with your business partner, or if a partner wishes to leave the company.
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A shareholders’ agreement can also help you retain access to shares in the event of a shareholder’s death. You can stipulate their shares must be passed on to another shareholder. If not, under the terms of their Will or following intestacy laws, they could pass the shares onto family members who may not understand the business, and you would have no rights to buy them back.
Q: What can happen if I don’t have a shareholders’ agreement?
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A: Without a shareholders’ agreement, you could be left in the difficult position of trying to negotiate business dealings after relations have broken down. This can be stressful and expensive.
Recently a shareholder met with me to discuss retaining control of their business. They had fallen out with their business partner – previously a close friend – and now the partner wanted to sell their shares (50pc of the company) to a third party. Faced with losing control of what was happening to the business, my client wanted to know what could be done to prevent this.
However, as there was no agreement in place, the other shareholder was free to pass on their shares to whoever they wished. They ended up paying costly legal fees to reach an agreement and eventually part ways. The situation would’ve been much simpler and cost much less if they had a shareholders’ agreement in place.
Q: When is the best time to set up a shareholders’ agreement?
A: The best time would be when the business is being set up, but it can be done at any time. Starting a new business is often hectic and it may not be at the top of your to-do list, but once your business is off the ground, I recommend contacting a solicitor as soon as possible.
Q: How can I set up a shareholders’ agreement?
A: It’s simple and easy to do. A solicitor can advise what things you’ll need to consider and guide you every step of the way. Call or email us to book an appointment.
Q: Must I seek legal help to set up a shareholders’ agreement?
A: I recommend speaking to a qualified solicitor to set up your shareholders’ agreement. There are free templates online which may look tempting, but a shareholders’ agreement isn’t a ‘one size fits all’ matter. They may not consider all the specific situations for your company or offer you the full protection you need.
Sarah Miles has over 16 years’ experience in company and commercial law. She works with businesses of all sizes, from sole traders to large enterprises. Sarah’s experience means that she can help you with all aspects of company law, from commercial contracts and shareholder agreements, to buying or selling your business.
HRJ Foreman Laws Solicitors have offices in Hitchin, Welwyn Garden City and Letchworth Garden City.
Visit hrjforemanlaws.co.uk for more information.
Call 01462 458711 or email firstname.lastname@example.org to book an appointment.