Shareholder Agreement

Peter Mardon Corporate Partner

Why should I write a Shareholder Agreement?

Sadly but all too often I am consulted by clients who have fallen out with their fellow directors and shareholders. The ensuing dispute is usually time-consuming, expensive, emotional and ultimately damaging. In nearly all cases such disputes could have been avoided had a proper shareholder agreement been in place.

 

Unfortunately company law is not as helpful as it could be. It is difficult to stop an aggressive majority shareholder. All too often the rights of minority shareholders are trampled over.

 

However, at the start of a business venture the goodwill between the parties is usually at a high point. This is the time to have an honest discussion about the aspirations of the parties. How are profits going to be shared? What are the management responsibilities? What happens if we decide to part company? What happens if one of us dies or wants to retire?

 

A well drafted shareholder agreement will address these questions and provide a pre-agreed road map to a relatively quick and amicable solution.

 

Perhaps even more importantly a frank discussion at the outset will highlight any differences between the parties’ ambitions for the business. Often older and financially secure shareholders will expect to be investing money rather than time and may want to see an early exit either by selling the business on the open market or to their fellow shareholders. By contrast younger shareholders may see the business as a long term career and will want to focus on investing their time into building up a sustainable business that can provide an income for them and their families with any thoughts of an exit being in the distant future.

 

If you are or are considering becoming a shareholder, especially if you will have a minority shareholding, then it is essential that you have the protection of a shareholder agreement. Failing this your shares may be worthless.

 

I regularly host meetings with business people at the start of their ventures. These meetings are in my opinion vital. If you would like to meet me to discuss your business and what can be achieved with a well drafted shareholder agreement please do contact me.

 

Visit our other Commercial Law articles.

 

 

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