When setting up a business, business owners do not usually think about what could go wrong within that business. At the beginning of any startup, everyone involved will have great expectations about their business idea and often completely convinced that it will be a great success.
At this stage many business owners forget or do not consider that it is important to apply prevention measures to solve any complicated situations that could arise in the future. Since many as 8 out of 10 companies fail within the first year according to statistics, it is highly important to implement the correct business processes with formal written agreements. A bespoke set of well written terms and conditions is an absolute must for any start-up or business wishing to grow. It is also absolutely fundamental for any business where there is more than one shareholder/director/business owner that you have an agreement in place for this too.
Even if you are entering into business with a friend or a family member you may assume you can trust one another and it’s unthinkable to imagine that anything could make you fall out. However things go wrong, you could end up with nothing and a failing business because parties just cannot agree.
Although the company’s articles of association and company law will help to some extent, a fully considered and well written shareholders’ agreement will act as a safeguard and give shareholders more protection against scenarios that are quite possibly unthinkable when you start out.
You may never need to rely on it, however, there will be many more cases where shareholders wish they had taken the time to put a proper agreement in place and prevent the problems that arose in their business than those wish they didn’t get an agreement.
If you want to be positive about your future relationships with the other shareholders and want to protect both the business and your own investment in the company then a shareholders agreement is crucial.
The agreement should:
The agreement should contain specific, important and practical rules relating to the company and the relationship between the shareholders and/or directors. This can be beneficial for all shareholders whether they hold minority or majority shares.
It is best to put a shareholders’ agreement in place when the company is first formed and the first shares are issued. Look at it as a positive exercise to ensure there is a ‘meeting of the minds’ of the shareholders’ expectations of the business. Be clear on the differences of opinion between the investors at this stage, if they are too different and a shareholders’ agreement cannot be agreed on then this is a warning sign before the business has even started to grow.
It is never to late to get a shareholder agreement in place though. Maybe the business is well established and has a new investor coming on board. Loan agreements can be attached to shareholder agreements too should the investor be loaning money to that business. Potentially the business has grown in such a way each shareholder are taking on different roles and these need to be stipulated in an agreement.
At BEB we can draft your shareholders agreement for an affordable price whilst decoding all the legal jargon so each shareholder understands exactly what each clause means
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