When setting up a company with family or friends it is easy to assume that nothing will go wrong in the future. You might assume that as you trust the other shareholders implicitly that you do not need to put in place something like a shareholders’ agreement – in fact, you might think that asking for a shareholders’ agreement will make it sound like you do not trust or respect your new business partners.
Hopefully nothing will go wrong in the future. However, even family members and best friends fall out and, if the worst should happen, you could then end up with nothing. Or you might face the breakdown of a friendship alongside a costly and acrimonious legal dispute related to the business.
A fully considered and well drafted shareholders’ agreement can act as a safeguard and give you and your fellow shareholders more protection against these types of scenario.
Although some people with a shareholders’ agreement will never need to rely on its terms, there will be many more cases where shareholders wish they had taken the time to put a proper agreement in place.
If you are going into business with others and are looking for confidence about your future relationships with them, you should carefully consider putting a shareholders’ agreement in place to protect both the business and your own investment in the company. This does not have to be registered at companies house and is private between the shareholders
Why have a shareholder’s agreement?
The purpose of a shareholder’s agreement is to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and govern how the company is run and what will happen if something does go wrong.
The agreement will:
The shareholders’ agreement will contain specific, important and practical rules relating to the company and the relationship between the shareholders. This can be beneficial both to minority and majority shareholders.
Prevention is much cheaper than the cure and it is much easier and cost effective to put in place a shareholders agreement at the outset of any relationship than trying to sort out a dispute when something has gone wrong and the relationship has ended or is coming to an end.
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