Shareholders’​ Agreement – why do I need one?

Shareholders’​ Agreement – why do I need one?

It’s always a question of priority when running a private business – every dollar is precious. If a dollar is to be re-invested, it needs to be well invested.

We often hear business owners wondering why they should invest in a Shareholders’ Agreement – “we get along really well”, “we’ve known each other a long time”, “I trust him or her” or “if we have a problem, we’ll just work it out commercially”. And that might well be right. But like any relationship breakdown, the circumstances and timing are often unpredictable and so is the response. Plus, money is involved (often a lot of money) so the stakes are high.

A good Shareholders’ Agreement sets out a map for running the business in the good times and resolving issues when things aren’t so rosy. Which decisions require unanimous or majority approval? What happens if the business needs additional capital for expansion? If the business owners can’t agree on the direction of the business, then what? If one business owner can’t work for an extended period, what will we do?

Agreeing a Shareholders’ Agreement when the parties have a good working relationship is much, much easier than at any other time!

So, why spend money on a Shareholders’ Agreement when you can buy one online or just use one that you’ve seen before or used in another business?

A good Shareholders’ Agreement for your business will never be exactly the same as one for any other business. Whilst all Shareholders’ Agreements have some level of similarity, the particular options for each of the issues are nearly endless. Your Shareholders’ Agreement needs to be carefully prepared to accommodate the needs of the particular business and the business owners.

The skill is not just reading what’s in the agreement, it’s the experience of knowing what is not in the agreement. Sometimes leaving something out is to your advantage. Sometimes it’s not. It’s also knowing what the other options might be.

As well as setting out mechanisms for resolving disputes between business owners whilst preserving business value, a Shareholders’ Agreement should also facilitate investment by new owners and exit by the current owners.

We have prepared many Shareholders’ Agreements and can offer a fixed price for preparation of your business’ Shareholders’ Agreement. If you want to have a confidential discussion about preparing a Shareholders’ Agreement or your business generally, we’d love to hear from you.

Our Corporate and Commercial Lawyers