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Shareholder agreements

All Areas > Legal & Finance > Money Matters

Author: Roger Downes, Posted: Wednesday, 24th June 2015, 08:00

It’s easy when you start out in business with a colleague or even another member of the family to think of the positives and indeed, in many ways, you should. “This time next year, Rodney, we’ll be millionaires”.

But, too few such entrepreneurs think enough about what can happen if it all goes terribly wrong and sadly I’ve seen a couple of these cases recently. It can be worse than a marital breakdown in some ways, but hopefully without the kids.

Write it down!
There is something that you can and should do about it at the outset – write it down. Set up a shareholder agreement that establishes firstly how each party will behave in terms of day-to-day management of the business, and secondly what happens if the parties need to go their separate ways.

Don’t get dragged into a debate about the costs of drawing up an agreement. Yes you will need a solicitor to draw up the document, but don’t begrudge them the money. They will charge you a lot more to sort out the unholy mess that you are likely to get into in the absence of an agreement.

Providing protection for those with a small stake in the business
A good agreement will set out the duties of each party and confirm the parameters of delegated authority. It will specify what happens if one wants to leave and provide a basis for introducing newcomers to the company. It also provides protection for those who have only a small stake in the business.

It doesn’t sound like rocket-science does it? It isn’t, but it could save major stress and costs in the event that your business rocket doesn’t fly true to its course.

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