A few good reasons to have a shareholders’ agreement…..
The following article by Clare Richards was published in the East Anglian Daily Times on 6th May:
It’s easy to buy an off the shelf company. The documents will be straightforward, reflect the general legal position and can be entirely suitable for some businesses. If you own the business outright you may not need to have anything else. If you are in business with someone else, though, you would almost certainly benefit from having more detailed written arrangements. Here are some questions that can be addressed:
How are we going to manage the business? Will all the owners share management responsibility? If so, what happens if one person stops doing this? He might want to leave the business – retirement, relocation and a career change are all possibilities. Illness might prevent him from taking part. A shareholders’ agreement can set out what should happen if one participant cannot (temporarily or permanently) take part in management.
What if one of us wants to sell shares? Under the general law, there is no easy way for one shareholder to make another buy him out. The opposite is also true – so a shareholder cannot easily be forced to sell. A shareholders’ agreement can deal with this by giving buy and sell rights (options) in certain circumstances. A shareholders’ agreement can also deal with the possibility that a shareholder wants to sell shares to an outsider.
What if one of us dies? Generally, a shareholder can do what he likes with shares on his death – the shares are an asset in the deceased’s estate and can be inherited in the ordinary way. This can cause problems for both deceased and surviving shareholders – the deceased’s family may not know what to do with the shares, whilst the survivor is now running a company in part for someone else. A shareholders’ agreement can include arrangements to sort this out.
What if one of us wants to sell the business? Someone might make an offer to buy the business. If all shareholders want to sell, that’s great. If not, and there are some who do want to sell and others who do not, the sale will most likely be lost. This means that one reluctant shareholder might thwart the wishes of the majority. This can be dealt with in a shareholders’ agreement.
What happens if we fall out? Most people think this will not happen – but differences do occur, sometimes after many successful years. If there is a dispute, it is generally much easier if an agreement exists with a mechanism for dealing with this. That mechanism may not be perfect but it is likely to be better than nothing at all.
If you would like more information about this, please contact Clare Richards at Barker Gotelee.
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