Your business is up and running, it’s growing fast and everyone gets on really well. You all want the same thing, right? A successful venture, to build the company and to exit in 5 years? Oh, I see, you want to have a 3 year plan instead and then get one of the big boys involved? Actually, you’d rather have regular dividends and a longer-term growth strategy? Oh, you want your other business partner to get involved – he can subscribe for new shares, yes? Or buy some of yours? He can be on the Board as well, right?
Still think you all want the same thing?
A Shareholders Agreement can be the elephant in the room. Everyone involved would like to have one in place, but there’s so much going on that it gets pushed to the bottom of the wish-list as something that’s too time-consuming or expensive to deal with. Then people start to want different things and that’s when the trouble starts.
If you don’t have a Shareholders Agreement you have to rely on the Companies Act 2006 and the Articles of Association. You could find out the hard way that something as basic as getting first refusal on the issue of new shares or having the right to appoint a director isn’t covered. Or you might find that the provisions on share transfer in the Articles of Association make it impossible for you to sell your shares, even if you could find someone who wanted to buy a minority shareholding in a private company with no right of veto over major decisions.
It doesn’t have to be that way. You’re all the best of friends right now, so now is the time to get it sorted out. A couple of hours talking to a lawyer who knows what they’re doing and you can agree what you want and how you can take it forwards. You can then get the Shareholders Agreement and Articles drafted that really work for you, giving you the flexibility you need to run your business and the security of knowing where you stand.