The importance of shareholders' agreements

SME & Ltd company 2
Important of shareholder agreements

If you’re going into business with someone else – even if it’s a mate or family member – it’s definitely worth creating a shareholders’ agreement.

‘But I can’t do that. Debs’ll think I don’t trust her’, we hear you say. Well you can do it. And you should. Read on to find out why – and why Debs’ll understand.

So… what does a shareholders’ agreement do?

Initially, it provides a handy way of establishing roles and responsibilities in running the company, and makes it clear who has invested what. During the life of the company, it acts as a guide for decision making, makes sure everyone has a fair say, and encourages discussion before action.

But it really comes into its own should circumstances change. While this could be due to a falling out of partners, it could just as easily be down to ill health, other opportunities arising, or personal issues meaning business priorities are affected.

A shareholders’ agreement protects everyone involved. It’s designed to prevent needless bust-ups, and to help business run smoothly and in everyone’s best interests, even if this involves shareholders going their separate ways.

What’s in it then?

A shareholders’ agreement can vary in content and detail, but the meat of it revolves around defining:

  • how a shareholder can sell their shares

  • who is involved in company decisions, to ensure shareholders get their say

  • rules over new shareholders entering and existing shareholders leaving (do you want shareholders to be able to buy out the one who’s leaving… or should profits continue to be split?)

  • how dividends are paid – who sees the profit, and when?
  • how any disputes will be dealt with

How do I go about creating one?

There’s loads of advice and some templates available online. And you can register your final shareholders’ agreement with Companies House yourself. However the sheer volume of advice can be confusing, and it’s difficult to know how detailed you should make it, or how flexible you should keep it. The shareholders’ agreement can also overlap with your ‘Articles of Association’, which dictate which general laws and regulations will apply to a company.

Whether you’re just starting out, or you’re already up and running, it’s a good idea to seek professional help. Agreements prepared by solicitors have a reputation for being lengthy, hard to read and difficult to understand. Not to mention pricey.

Moose like to keep things simple. We’ll discuss your situation with you, provide a short report covering everything we think is needed, talk you through it, leave you a copy, and file it our end for when it’s needed.

Tempting to say ‘simples’ at this point. We’re better than that though.