Imagine playing a team game with no rules.
How long would it be before the participants would be wasting valuable playing time discussing or potentially disagreeing over whether or not a goal should be allowed, when the game should come to an end or any one of a thousand other potential points of contention. Even if the players are related or close friends, the chances of a fallout and the game failing are significantly greater without rules being in place.
Successful and enjoyable games have rules.
Many businesses are set up as a limited company. However, few of those businesses ever put in place a Shareholder Agreement. They are playing a game with no rules.
With a Shareholder Agreement in place there is a formal understanding, agreed by all.
By determining what happens in certain situations there is much less potential for disagreements between the shareholders that could damage the business, particularly if things start getting tough.
The simple fact of establishing the rules which everyone has to comply with makes good business sense and having an agreement in place will help protect the relationships you valued when you decided to work together.
Why does every business need a Shareholder Agreement?
It is certain that at some stage in the life of the business, there will be a need for change of some sort when decisions have to be made and plans put in place. How and when these decisions are made can test relationships and a code of conduct and pre-agreed rules as to how these decisions are made and put in force will help maintain the stability and direction of the business.
When a company is established there will be a set of Articles of Association attached to it. These are more often than not standard documents issued by Companies House that rarely take into consideration the activity or needs of the company but do stipulate certain rules about its conduct as dictated by Company Law.
A Shareholder Agreement is different. It is an agreement between the owners of a company and sets out how they want to run it and how they will deal with certain events that may arise. It is a legal contract between the shareholders that all who sign it must comply with and gives everyone a point of reference and set of self-made rules for the future.
Successful businesses put in place shareholder agreements to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and to govern how the company is run.
Some common ‘What ifs’ that can happen in any business that can be at best highly disruptive and at worst fatal without a Shareholder Agreement in place.
- What happens if a shareholder dies?
- What happens if a shareholder who is a director loses capacity?
- What happens if a shareholder is made bankrupt?
- What if a Director Shareholder wants to retire?
- What if we want to issue more shares?
- What if we want to take on investment or raise finance?
- What happens if shareholders disagree?
- What happens if the business is to be sold but a minority shareholder won’t sell?
- How is the value of the company to be decided?
- What happens if a director shareholder leaves and contacts my clients?
Let us help you put the rules in place that will help to avoid wasted time and the damage that can be caused by common eventualities.
We have the expertise and are here to help.
Please contact us for more information or to make an appointment.