There is an old saying that goes more or less like this:-
“When poverty walks through the front door, love leaves through the back door”.
Whilst business is going great and all the shareholders do what they have to do there is usually no need for any formal agreement between them. This usually changes dramatically when the business suffers a downturn or some other unforeseen event causes a significant disruption to the business.
We unfortunately live in the real world and not in a perfect world and therefore things happen over which we sometimes have no control.
Consider the following real life scenarios:
1. The business requires an urgent capital injection but the shareholders cannot agree on how to deal with this;
2. One shareholder wishes to get out of the business but the shareholders cannot agree on the terms and conditions for the shareholder to leave;
3. One of the shareholders is in a motor vehicle accident, suffered brain damage and remains in a coma for several weeks. The son of the shareholder strongly believes he knows more about the business than anyone else and considers it his duty to take his father’s position as shareholder in the company.
When parties enter into a business venture it is with the aim to be successful, however any of the scenarios referred to above has the potential to cause the end of the business. The above are but a few examples and there are many more situations that can occur that will have a detrimental effect on the business if there are no processes in place to deal with those events.
Even though there is no legal requirement to have a Shareholder’s Agreement, we believe it is a fundamental cornerstone of a potential very successful business. Without such an agreement the parties may find themselves embroiled in costly time consuming litigation that can seriously destroy the business. Besides this, it will give parties peace of mind that the business will not suffer if anything unforeseen happens.
A Shareholders Agreement basically deals with the intentions of the parties in case certain events occur and contain a process to follow in those circumstances.
Some of the issues that are dealt with in a Shareholder’s Agreement are as follows:-
- Voting between parties;
- Funding arrangements;
- Budgets and business plans;
- Expansion of business by allowing new shareholders;
- Dispute resolution mechanisms;
- Selling of shares in the business;
- Process to follow if a shareholder becomes incapacitated or bankrupt.
These are some of the issues that can be dealt with in a Shareholder’s Agreement but is not a detailed list. To have your “house in order” or your business on a good foundation for the future, a Shareholder’s Agreement is a must.
Should you require any further information regarding Shareholder’s Agreements, Partnership Agreements or Joint Venture Agreements please do not hesitate to contact our commercial team on 07 5536 9777 or email firstname.lastname@example.org or complete an online form today!