If you are starting out or have been running a business for years and you work well with the people alongside you, legally formalising aspects of your business may feel unnecessary. As shareholders or partners, you probably share similar business approaches and objectives and cannot see a time when this is not the case. You may also be long term friends (or even family) and imagine that you will never have a disagreement.
However, it is important that a shareholders’ agreement is created and reviewed regularly to prepare for the future and protect your business throughout its lifecycle.
We typically advise that an agreement is created in the early phase of a business when there is more likely to be consensus amongst parties. A well drafted shareholders’ agreement will detail how the business is going to be managed, if there is a deadlock in a decision or issue which needs to be resolved and what happens if someone exits the business (voluntarily or involuntarily).
Without one, you would have to rely on the Companies Act 2006 to resolve any legal issues that arise. This could result in outcomes which you do not expect or want, and outcomes which may not be in the best interests of your business.
These two documents perform similar functions, acting as a guide for how decisions are made and disputes resolved: how your business is structured will determine which agreement is needed.
If you are in a partnership or limited liability partnership, you will need a partnership agreement.
If your business structure is a company limited by shares, the document will be a shareholders’ agreement.
For more information on how we can support you in drafting, reviewing or negotiating your shareholders’ agreement, please contact one of our corporate & commercial specialists below.