Shareholder agreements – why they matter
Going into business with family, friends or business acquiantances is akin to starting a marriage. Everything seems rosy, exciting and positive and that’s great. But like many marriages in the modern world, things can go wrong, the pressure of modern living can intervene or people just don’t turn out to be who you thought they were or do what they say they will do.
The one thing likely to destroy a business which is otherwise healthy is internal disputes, not least because shareholder disputes can be so expensive and the parties increasingly entrenched, again just like a marriage.
Having a shareholder agreement does not guarantee that things won’t go pear shaped but at least it generally makes court proceedings more straightforward or can lead to an earlier settlement of a dispute. There are many other good reasons to have a shareholders agreement which include :-
- making provision for what happens if one shareholder wants to sell his or her shares – you certainly won’t want to suddenly find yourself with a new business partner without your consent
- what happens to shares when a shareholder dies, again, you may like having your friend as a business partner, but will you want his or her spouse as your new partner ?
- providng for day to day roles and responsiblities of the shareholders, if any
- restrictions on authority, for example to spend money, over a certain limit, especially if one shareholder is an investor and does not have day to day involvement
- protection of minority shareholders so that it is clear that certain changes to the company rules cannot be voted through to the minority shareholder’s detriment
It is now perfectly possible to get a shareholder’s agreement drawn up by commercial solicitors at very cost effective price. An investment at the outset of a business relationship sets the right tone and the right foundation for a business and we certainly recommend this to any new business.