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.

Andrew Dongworth, one of our specialist company and commercial solicitors answers the top 5 questions about a shareholders’ agreement and how it can help you protect your business.

1. Why do I need a shareholders’ agreement?

If you are a limited company with fellow shareholders, it is important to have a comprehensive shareholders’ agreement. It will protect you from several 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.

A shareholders’ agreement will 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, the shares could be passed onto family members who may not understand the business, and you would have no rights to buy them back.

2. What can happen if I don’t have a shareholders’ agreement?

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 difficult, 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 (50 percent 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 both 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. In this scenario, they would have followed the process set out in the agreement.

3. When is the best time to set up a shareholders’ agreement?

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 the list. But once your business is off the ground, I recommend contacting a solicitor as soon as possible.

4. How can I set up a shareholders’ agreement?

It’s simple and easy to do. We will advise what things you’ll need to consider and guide you every step of the way. Call or email us to book an appointment. 

5. Must I seek legal help to set up a shareholders’ agreement?

I would recommend you speak to a qualified solicitor to set up your shareholders’ agreement. Your needs won’t be the same as another business. 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.

For advice on your shareholders’ agreement, email info@hrjforemanlaws.co.uk or call Hitchin 01462 458711, Welwyn Garden City 01707 887 700.

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