Shareholders / Partnership Agreements
When you’re running a business with other people (particularly when they’re friends and family), it’s easy to assume that you all have the same ambition. However, the reality can be and often is, very different.
This can lead to unnecessary disputes which at best take time to resolve but at worse can ruin relationships and end up forcing the company to close. A shareholders’ agreement (if you’re running a limited company) or partnership agreement (if you’re running a partnership) serves several purposes.
- It’s a written record of the contributions that each of the shareholders makes to the business. For example, one may contribute cash, another expertise. One may own intellectual property rights they have invented and another may provide premises or equipment.
- It will also set out how the business will be run and how decisions will be made. (This is especially important if there are an equal number of shareholders or partners and a deadlock whilst making decisions is possible).
- It will set out how the owners will split the profits and how much money will be retained for future growth.
- If the business doesn’t work out or one the owners decide to go their separate ways, it can help prevent disputes by, for example, pre-agreeing whether any property or assets they contributed should be returned to them.
In the past, clients have said that it feels awkward or embarrassing to suggest that a shareholders’ agreement is needed. They feel it implies a lack of trust between them. In our experience, this isn’t the reality.
The true value of a shareholders or partnership agreement comes from everyone sitting down and talking through these issues. This ensures everyone knows exactly where they stand, right from the start. All shareholders and partners will welcome this clarity and the agreement will form a solid base for them to build their business on.
After completing the checklist, there’s no obligation to take this any further. However, if you would like our help in preparing a shareholders or partnership agreement, we would be delighted to do so.