……

When you go into business with someone, you’re likely to spend more time with them, and have your finances & fortunes more closely linked to theirs than if you’d married them.

Like all (most) marriages, you set out with the best of intentions, certain that your future together will be a long, happy and fruitful one. Having a written agreement about how you’ll behave seems unnecessary, and just the sort of thing to take the romance out of the relationship.

Yet this is exactly what we would recommend. Every business should have either a Shareholder or Partnership Agreement that documents exactly what each of the parties rights and responsibilities are. These documents make it clear who owns the business, and what each of the shareholders / partners can expect in return.

This also allows you to have different arrangements for later investors. For example, it can exclude people from certain voting rights, or vary the proportion the dividends they get paid on their investment.

More importantly, Shareholder & Partnership Agreements document what is to happen in response to certain Trigger Events. For example:

  • The death of a shareholder. Do you want her shares to automatically revert to her husband, who you’ve always hated?
  • Similarly, in a divorce, a directors shares are counted in his assets.
  • A shareholder wants to retire. What are the arrangements or restrictions for him to sell his shares to the other owners?

 

For Partnerships, a written agreement is essential. Without it, the Partnership Act 1890 applies in full, and can have serious implications for all of the partners – especially in the event of any wrong-doing by just one of them.

Like all essential legal documents in a business, it’s also important that Shareholder and Partnership Agreements are regularly reviewed – we suggest this is done at the same time as your AGM. This provides you the opportunity to do things like adjust the value of the business that will be used in response to a Trigger Event, or update the details of any life insurances the business owners have.

If your business doesn’t have a Shareholders’ or Partnership agreement, or if it’s been several years since anyone took a detailed look at it, please get in touch, and we’ll talk you through what’s involved.