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Part 3 of the ‘Starting a business’ series
If you decide to change your business structure or take on one or more partners or shareholders then you need a written partnership agreement or a shareholders agreement. These governing documents are set to regulate your relationship with your fellow business partners and help protect you and your business from potential risks and disputes down the line.
Why use governing documents?
These agreements set out the rules if you will, for managing your business relationships going forward and document what will happen in certain circumstances. Without a solid set of rules to regulate your business relationship with your partners there may come a time when relying on verbal agreements or good intentions is not helpful. For example, what if someone wants to leave the partnership or company; what if they die? What if some partners want to get rid of a rogue partner? Alternatively, what if there is a dispute, or if one party decides to sell their interest in the business or retire and go their own way? Shareholder or partnerships agreements are a little bit like a combination of a pre-nuptial agreement and a will for your business. They are there to protect you and your business. After all why put your hard work at risk?
A well drafted agreement will set out such things as how profits will be divided, what happens if one of you wants to leave, restrictions and obligations, what happens in the event of a dispute, the procedures on death and the rules for making major business decisions. These agreements can be tailored to your individual business and the issues that are likely to affect it. Without a written agreement in place you can end up in a dispute or relying on old statutes such as the Partnership Act 1890. Governing documents are an essential part of business and a practical means of ensuring that your business has a strong foundation upon which to transact. They are designed to deal with a comprehensive variety of fundamental issues that may arise from time to time. Agreeing how to regulate these matters early on may save both time and money and your business from harm. They can help protect your business from disputes which can damage the goodwill and spell disaster for your business.
Written by Shelley Bonney, Corporate Solicitor at WSP Solicitors
For further information please contact Shelley on 01452 429874, or via email firstname.lastname@example.org
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