The importance of shareholder agreements
Stewart Matthews

The importance of shareholder agreements

Setting up a business with my best friend in business was great - until …”

Why protecting your business interests with a Shareholder Agreement is a 'must‘

“I never dreamed I’d need a shareholders’ agreement.  I thought Nick was invincible.  Now it looks like I might lose everything I’ve worked for!”  This was Jonathan, a couple of months following his friend and business partner’s shocking death.

How often have we heard words like Jonathan’s?

Too often.

Partnerships can be terrific, until … they’re not so terrific, and they end in acrimony or tragedy.  Who can predict the future?  Who can know for sure what pressures will bear on the partnership?  Pressures come, not only from within the business, but from outside.  Health, relationships, personal finance, jealousy, perceived laziness, ego and, of course, tragedy.

A legally-binding shareholders’ agreement is critical to the setting up, smooth running and amicable conclusion of business partnerships in a company.

Let’s get back to Jonathan.  Nick had been killed in a car accident.  Jonathan had never got on with Nick’s wife.  Soon after funeral, she started demanding money from the business.  Meanwhile, without Nick’s contacts, sales were faltering.  Jonathan was having to spend large sums on headhunting a replacement, who would command a high salary.  Jonathan and Nick had always taken a dividend, never a salary.

All this pressure was now weighing on Jonathan’s shoulders, while his wife was demanding an equal dividend.  Surely this wasn’t fair.  He’d offered to buy out Nick’s wife, but she was demanding far more than the business was now worth.

Much of this trouble and unpleasantness could have been avoided, if only they had put in place a legally binding shareholders’ agreement.

So, how do you set one up?

Talk to us. We will explain how the agreement works, what is expected of each business partner, what happens if a partner dies or decides to leave and how to deal with disputes.

Don’t forget - when you start up a company, you must set up a shareholders’ agreement.  You owe this to your partner, yourself and to those who depend on you.