Whether you are starting out or have been running a business together for years, if you are working well with the people alongside you, the chances are that the thought of legally formalising aspects of your business feels unnecessary or awkward. As shareholders or partners, you probably share similar business approaches and objectives and cannot see a time when this is not the case. However, it is important that a shareholder or partnership 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 all there is more likely to be consensus amongst parties. A well drafted partnership or shareholders agreement will detail how the business is going to be managed, what happens 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 or the Partnership Act 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.
They form 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 a partnership agreement should be drafted.
If your business structure is a company limited by shares, you should consider getting a shareholders agreement.
For more information on how we can support you in drafting, reviewing or negotiating your shareholder or partnership agreement, please contact one of our corporate & commercial specialists below.