Shareholders’ Agreements

My business partner and I have run a happy ship for more than ten years but we’ve had a serious fall out about the direction that the business should take. I feel it might be better to go our separate ways?

Try if possible to sort it out with your business partner. It might be worth asking someone else to attend a meeting as a neutral person to listen to what you both have to say. Your accountant or solicitor may be willing to do that for you. If the business has traded successfully for ten years, it’s certainly worth making every effort to find a solution.

If a solution can’t be found then the next stage would be to check whether there are any written documents that set out what should happen in these circumstances. These are often called partnership agreements or, if your business trades as a limited company, shareholders’ agreements.

We trade as a limited company on our accountant’s advice. I’ve not heard of a shareholders’ agreement though.

A shareholders’ agreement is a written agreement which in smaller companies usually involves all the shareholders as owners of the business. There are no set rules as to what is included but typical topics are setting out what would happen in the event of a ‘deadlock’ situation, and dealing with a situation where someone wants to leave the company. Clearly such an agreement would be helpful in your current situation. However, if you don’t have one, all is not necessarily lost.

If the problem can’t be resolved, then this is the right time to see a solicitor for some initial advice. Many solicitors will offer a free initial appointment so it’s worth taking advantage of that offer! Try to find a solicitor with experience of dealing with this type of problem.

My business trades as a Limited Company with just myself and my business partner as directors and shareholders. We had a major fall out recently but have patched that up. Following advice from our accountant we’ve decided to have a shareholders’ agreement put in place in case we have further problems. I’ve found a website where you can draw one up yourselves. We’re a bit worried about running up legal costs, so we’re thinking of doing this. It should be fairly straightforward, shouldn’t it?

Be careful that this isn’t a false economy. A shareholders’ agreement made between business owners is a very important document. It’s important that you both consider carefully what you want your agreement to achieve, that the terms of the drafted agreement reflect those wishes and that ultimately the agreement will work as you both intend. A template format can be dangerous in these circumstances and I would advise you to think very carefully before going down this route. Getting the right advice at the right time can be crucial and can potentially avoid unnecessary problems in the future. In these circumstances it really can be worth speaking to a solicitor who specialises in providing advice to businesses. Many solicitors will be happy to give some free initial advice and if you decide to ask them to draw up the paperwork, you should not be frightened to ask for a fixed fee for doing the work. For a relatively straightforward agreement it might well be cheaper than you think. It’s usually worth getting this type of important documentation properly drafted by a specialist solicitor. Not only should you benefit from professional guidance to ensure that you get the agreement that you want but if things do go wrong, you’ll be covered by the solicitor’s professional indemnity insurance.

Although getting a shareholders’ agreement prepared by a solicitor will incur some costs, these costs will almost always be cheaper than having to sort out problems at a later date, possibly when the relationship with your business partner may be under more strain.