Back
Get in Touch Menu

Do I really need to bother with a shareholders’ agreement?...

20 September 2019

When starting out, many businesses naturally want to keep costs to a minimum. This often results in them regarding a shareholders’ agreement as something optional or something to consider at a later date.

Similarly, many new businesses automatically adopt the model articles of association issued by Companies House when incorporating a business, rather than having articles drafted that are bespoke to the business.

Whilst neither of these decisions are ‘wrong’, it is important to be aware of their potential consequences should a problem crop up further down the road.

A significant benefit of having a shareholders’ agreement, or bespoke articles of association drawn up, is that the process itself encourages discussion of key issues. In turn, it helps identify any potential areas of disagreement.

Discussing, for example, how long shareholders are intending to be involved with the company (i.e. whether they see their shareholding as a long-term investment or whether they are looking to grow the company rapidly and exit within a matter of years), what should happen if a shareholder wants to sell their shares or what should happen if something terrible happens to a shareholder, will help to identify whether the investors have different expectations.

Once these discussions have taken place, we can draft a suitably-crafted set of documents that reflect the understanding of all shareholders and provide an agreed framework for taking the company forward.

In our experience, by having these discussions and ensuring that all shareholders are on the same page, the shareholders’ agreement can indeed be put in a drawer and forgotten about. However, crucially, the shareholders have peace of mind in knowing that should an issue arise, they have already agreed how it is to be dealt with.

This is an example of where a little preparation can save a lot of time, money and stress –  whilst importantly protecting both the business and their investments.

Contact
Helen Howes LLM
Trainee solicitor
View profile
Helen Howes
Related services
Share this article
Resources to help

Related articles

Closing a deal successfully: top tips from one of our corporate partners

Corporate

When it comes to buying or selling all or part of a business, there can be many pitfalls on the road to completion. Corporate & commercial partner Chris Wills explains…

Chris Wills LLB (Hons)
Partner

Succession planning for business owners

Wills, trusts & probate

If something unexpected befell one of the key people involved in running your business, what would happen? It is important that every business has a crisis plan in place to…

Rachel Sugden LLB (Hons), TEP
Associate, solicitor

Brexit Q&A: How can my business manage post-Brexit risks?

Commercial

The key to navigating Brexit for any business is planning. Right now, despite the uncertainty around what Brexit may or may not look like, all businesses (whether they trade directly…

Chris Wills LLB (Hons)
Partner
Contact us