Whilst the initial stages of setting up a business can seem daunting, and the paperwork rather overwhelming, these early, nerve-wracking days can also be exciting. The details that you decide now are hugely important. They will form the foundations of your business and dictate how it will run, in the future – with the minimum amount of risk.
Two such documents to consider are Shareholders’ Agreements and Partnership Agreements. Both documents can encompass general provisions for the day-to-day running of the business, how to deal with incoming or outgoing parties, set procedures to be followed in case of disputes arising as well as catering for more unique occurrences.
Getting them right at the beginning means that you have critical guidance going forward- but what exactly should they encompass and why are they so key? Here, Ison Harrison’s Jenna Meehan explores them in more detail.
Shareholders’ Agreement
In a Shareholders’ Agreement, the relationship between the shareholders and the company itself is dealt with. The Articles of Association, which we looked at in the last issue, are filed with Companies House and are a matter of public record. A Shareholders’ Agreement, on the other hand, is private but would be relied upon over and above the Articles if so required.
The Shareholders’ Agreement can include (but is certainly not limited to):
- The financial entitlements and obligations of each shareholder,
- What happens to a share in the business in the event that one of the shareholders dies, is critically injured, made bankrupt or decides to retire,
- The valuation of shares in the event of the above; and
- The way in which the departing shareholder, or the estate, is to be paid for their share(s).
Partnership Agreement
A Partnership Agreement governs the way in which partners in the business will conduct its’ day to day running as well as providing for one-off events. It is not a legal requirement but if one is not in place, the default position is governance under the Partnership Act- which was passed in 1890, long before anyone could imagine the modern business world and how it would operate. The Act does not provide the safeguards that a bespoke agreement can; its’ approach is far broader. You only have to consider how it deals with profit sharing (on an equal basis, regardless of circumstance)
In a Partnership Agreement, it is possible to cover such elements as:
- The roles and responsibilities of each Partner,
- When, and indeed how, the Partnership could/would be dissolved,
- What happens in the event of death: how the remaining Partners deal with the business going forward; and
- What happens if a Partner leaves: do you want to restrict their ability to join another company for a set period? How and when would you want to take on someone to replace them?
At Ison Harrison, we are able to draft bespoke agreements that entirely meet your business needs. An Agreement can be drafted within 2-3 weeks of us taking your full instructions (or even earlier in cases of need). We offer free initial consultations so that you are able to obtain prompt, confidential and jargon-free advice when you need it.
Whilst it isn’t possible to look into the future and predict the fortunes of any business, useful steps can be taken to ‘future-proof’ and minimise risks as far as possible, to help you enjoy the fruits of your success long into the future.
