Most big companies start out small – as ‘one-man’ bands, a group of mates from university or some colleagues from work. In order to grow, they become owner-managed limited companies. That’s when things start to get complicated and shareholder agreements become good things to have. It will set out systems for running the company and provide frameworks for when problems arise.
Let’s take an example of four friends from university who set up a web design and production business. They each hold 25% shares and are directors as well as employees of the business. Without a shareholder agreement, the company will be governed by its articles of association but these aren’t always enough to cover the various scenarios that may occur.
Disputes can arise out of nowhere
In an ideal world, our four mates will work together until retirement. But that’s not always the case.
Suddenly there’s a dispute. Mate D is sacked as a director and employee for gross misconduct, but he still has shares and is entitled to receive a dividend. He’s threatening to sell them to the CEO of a rival firm.
But you don’t need a dispute like that to find yourself in a sticky position. What happens when a director-shareholder wants to leave? Or dies? The company’s articles may be of little help… but a shareholder agreement could have provided a clear, dignified way out for all.
Avoid pain further down the road and your business will be able to grow safe in the knowledge that its owners are protected from any disputes or outside events.
To make sure you get the right agreements in place, call 01904 899794 to get started.