A shareholder agreement is a legal contract between the shareholders of a company. They can vary depending on what sort of business you run, but generally they share common aspects; outlining the business, the relationships, obligations and rights of the shareholders, as well as the distribution of shares amongst other details. With the number of start-ups in the UK on the rise , this is a necessity for anyone who is ready to jump into their own startup venture.
It can be easy when getting your startup up and running to assume in good faith that the shareholders have the same vision and expectations for the business. However, the best plan of action is to make sure each party is protected, should any problems or disagreements arise in future. This can also help avoid hefty legal fees if a dispute needs to be resolved and there is no shareholder agreement in place.
A shareholder agreement is flexible and can help protect both the majority and minority shareholders. It also helps to show that you’re serious about your businesses’ future and are prepared for any situations which may arise, which can in turn help demonstrate your dedication to any possible future investors.
When should a shareholder agreement be put in place?
Ideally your shareholder agreement would be put in place immediately once your startup has been founded. This will ensure that all shareholders involved are protected and will also help secure the future of your startup. Putting a shareholder’s agreement in place at the beginning of your business relationship will also ensure that you have outlined a contract which will be mutually beneficial and agreeable to all parties. Should problems arise later, it can become much more difficult (and more expensive!) to have a good outcome if there isn’t already a shareholder agreement in place.
Why do I need a shareholder agreement for my new startup?
Your shareholder agreement will ensure your startup has a solid base to build a future on! The contract can be flexible, so you can have it include different aspects that are relevant and essential to your startup. It also isn’t uncommon for start-ups to fail or change course from what was originally envisioned, and so a shareholder’s agreement will outline what should happen if the startup fails or one of the shareholders wishes to leave. Facebook itself is a great example of why you would do well to have an agreement in place should one of your shareholders have a change of heart.
What sort of issues should my shareholder agreement encompass?
Different aspects your shareholder agreement can outline are:
- Who the shareholders are and what proportion of shares they each hold.
- Roles and responsibilities designated to the shareholders.
- Running of the company.
- Restrictions for shareholders being involved in a competing business should they leave the startup.
- What happens if the shareholders are in a deadlock decision.
- What happens should one of the shareholders want to leave the business.
- Transferring of shares.
- Protection of both majority and minority shareholders.
Having this agreement in place will ensure your startup has the security to continue should any issues arise between shareholders later. You can read more about the specifics of our shareholder agreements here.
Start your business with a solid foundation
Start-ups begin with a solid foundation and bright dreams of the future; unfortunately, not all of them end up being successful. Being ready and hopeful for the future also means it is most practical to think of all eventualities that may occur, and to be prepared for them.
Having a shareholder agreement in place is a vital part of ensuring your start-ups stability and longevity should any disagreements occur between its shareholders. You can call JMR Solicitors for legal advice on 0161 491 3933 or email us on firstname.lastname@example.org to discuss drawing up a shareholder’s agreement for your startup.