Perhaps a shareholders’ agreement is a waste of money?
Like an insurance policy, it’s something you pay for and then forget; hoping you’ll never need it. But, if a dispute should occur between you and your business partner and you need to dig out your shareholders’ agreement and you’ll want to know it’s well-written, up to date and deals with all the possible eventualities. Put simply, it needs to do its job in providing a route to resolving matters and avoiding costly legal bills and further upset.
There is a lot to think about when you’re entering into a new business with someone, be it a family member, friend or colleague. There are new suppliers to forge relationships with, contracts to handle, office premises to organise, policies to get in place …t he list goes on! Amongst all the excitement and pressure, the idea of adding any additional paperwork to the workload can be overwhelming, which means that all too often putting a sensible shareholders’ agreement in place slips down the list of priorities.
This can have severe consequences further down the line. Disagreements, though never planned, are common, and it is essential that you have a well drafted shareholders” agreement in place that protects your interests and provides mechanisms for effective resolution of future conflicts.
How do you know if your shareholders’ agreement is up to scratch?
Having spent nearly thirty years specialising in resolving disputes between people in business together I have seen many shareholders’ agreements and it is fair to say that they are not all of the same standard. Regretfully, many agreements simply are not fit for purpose and shareholders only discover their agreement doesn’t do its job once they find themselves in the middle of a dispute.
So, what can be done about this? Well, it is imperative that your shareholders’ agreement is properly drawn up but a lawyer with specialist expertise and experience in this area. A specialist barrister can advise on the provisions needed to make it effective in practice. Your shareholders’ agreement should, at the very least, include these key elements:
- It should protect the interests of all parties – a good shareholders’ agreement will help regulate the relationship between shareholders, identify rights of participation and govern the way in which the business is conducted and the company is run.
- It should include rights of veto – such rights protect the position of minority shareholders ensuring that they cannot be excluded from important decisions affecting the business.
- It should allow access to information –a shareholders’ agreement should provide for access to all accounts, records, documents and other detail that might be required in order for each shareholder to properly assess matters and make fully informed decisions.
- It should provide mechanisms for the effective resolution of any future disputes – these might include compulsory retirement clauses, share transfer provisions, “put and call” options, valuation provisions and provisions regarding mediation/arbitration so as to avoid expensive litigation.
The truth is, without an effective agreement in place, all shareholders are left vulnerable and their position and interests in the company are at risk. For this reason, I always advise clients to ensure that an effective shareholders’ agreement is put in place from the outset when entering into a new business venture with others. If one has not been in place from the outset, an effective shareholders’ agreement should be entered into as soon as possible.
To ensure that your shareholders’ agreement is effective and “worth the paper it’s written on”, you should consider engaging an experienced and specialist barrister to draw one up for you. Do not try and cut corners; if your shareholders’ agreement does not cover everything you need it to, you will be leaving yourself open to unnecessary risk from the serious problems that can arise should business partners fall out with one another. A comprehensive shareholders’ agreement will put your mind at rest and protect your rights and interests, allowing you all to get on with your business.
For more information and to discuss in further detail what provisions you may need to include in your own shareholders’ agreement, please do get in touch for a free initial conversation.
