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Shareholder Agreements

How to stay best friends in business

Thursday, February 13th, 2014

Chances are, you are one of the many entrepreneurs who have set up business with your best friend. One of you is the creative person, the other the more managerial type. Between you, you have the perfect skills to run your dream business and before you know where you are, the kitchen table has become your HQ and the business is flying along. “What could possibly go wrong”, I hear you ask? “We have known each other for years and don’t need a formal agreement with each other. There is already enough to think about just running the business. We have set up a limited company so what more do we need?” Shareholders Agreement, Staying Best Friends

The answer is that you need to remember that you two are the foundations of the business. You are investing every spare waking minute on it, possibly hard earned savings too, maybe even re-mortgaged your house. You may not necessarily fall out, but have you agreed what is to happen if:

  • One of you meets the partner of their dreams and wants to sail off into the sunset (keeping up the Valentine’s theme 😆 )?
  • There is a juicy offer on the table from an investor, but one of you doesn’t want to sell up?
  • One of you wants to invest in a major piece of equipment, but your friend disagrees?
  • There is the pitter-patter of little feet and your partner suddenly doesn’t pull her weight anymore..
  • Illness or worse strikes? Should your friend be able to leave his/her shares to her friends and family rather than you have first refusal?

A common issue in the case of 50:50 shareholders is that as time goes by, one person is doing the lion’s share of the work and the other is doing less and feelings of resentment start to creep in.  Suddenly it seems wrong that profits should be split equally and yet you don’t want to risk your friendship.

These are some of the many issues that are covered in a so-called “Shareholders Agreement”. It covers all eventualities that you may encounter while running the business and provides a game plan for you to follow. It may feel hard and possibly pessimistic to have to imagine the “what if’s”, but I promise you that dealing with these issues now, will truly make your business run more smoothly. To this end, I have created the “Staying Best Friends Pack”.  It consists of:

  • A 50:50 Shareholder Agreement template
  • Guidance notes to help you complete it
  • 30 minutes consultation
  • 2 hotline call @15 mins each valid for 6 months from purchase

All of this is now available in our ‘oven-ready document shop’ here

Simulate failure for success!

Thursday, August 29th, 2013

This may seem an odd thing to do, but when putting an agreement together with another person or business, it is vital to think of what could possibly go wrong. In most instances of entrepreneurs setting up in business, they are usually doing so with a family member or best friend. Thoughts of them doing a runner or not pulling their weight will most likely not cross anyone’s minds. Nine times out of ten, people proceed with no agreement at all and this is a big mistake.

Contributed by Andy Voss (1635) on 02.08.2000.

Contributed by Andy Voss (1635) on 02.08.2000.

Just think of an airline pilot. They spend hours in a simulator, rehearsing every possible scenario both good and bad. The worst scenarios are the most valuable and in the recent tragic helicopter crash off Aberdeen, it was said that it was thanks to the pilots skills, that not more had died. He too will have rehearsed complete engine failure. If he hadn’t, it could have been a lot worse.

Large business have entire disaster recovery plans where they put mechanisms in place should the entire office be wiped out due to a natural disaster or there be a simple electrical failure eg hospitals. Small businesses should do the same.

I know it is not nice to think about things going wrong. Even if your family member or best friend stay loyal and hard working to the end, they may be subject to events beyond their control such as illness or the pitter patter of tiny feet or their other half moving jobs to another part of the country… My advice is to grasp the nettle and when entering into any kind of arrangement, have a contract in writing which sets out not only all of the positive elements of who will do what, but also all of the worst case scenarios.  That way, if they should happen, you will be prepared. Best still, pick up the phone to your lawyer and let them guide you and prepare an agreement tailored to your needs.

To get you thinking, look out for our forthcoming tips on “should the worst happen”.

When its time to part…

Friday, July 20th, 2012

As a Mum of two children that I cannot bear the thought of being without, the time has suddenly come when they want to spread their wings. I naively thought this would not happen for a while, but no, they have plans to travel, meet with friends for days on end- the time is NOW!Business exit strategies

It occurred to me that similarly, business owners face the same scenario: teaming up with best friends and partners to run the perfect business not ever thinking that they might part company. They may not even want to part company and simply have circumstances forced upon them such as illness, moving country, pitter-patter of little feet…Then the question of splitting up the business or continuing to run the business with someone else rears its ugly head and no one has the answer. This is where it is vital in any kind of partnership to clearly spell out what happens if the unthinkable occurs. It is usually set out in a Partnership Agreement ( in the case of a simple partnership) or Shareholders’ Agreement ( in the case of owners of a limited company). Key areas to think about are:

  • Who can the leaving party transfer their share to? Should they offer it first to the remaining partner? If so, how will it be valued?
  • If the remaining partner doesn’t want it, can the leaving partner simply offer it to anybody? Even competitors?!
  • What happens to property and assets contributed to the partnership? How will they be split, if at all?
  • What circumstances will trigger the ‘leaving provisions’? Just external events such as death, illness, moving country or also breaches of the partnership agreement itself?

Whilst these questions may seem morose, they have to be faced-just like my birds flying from their nest. Chances are, you will hopefully never have to face them once you have addressed them, but you will have peace of mind knowing it is covered.