A well established setup for running a business is where shareholders own the business, and the directors make the decisions regarding company direction and day to day activity. This principle generally works smoothly while the owner still manages the business and operations are still relatively small, however when new investors turn up or when several generations are involved, things can get a little bit complicated.

When the high-ups in a business want different things for the business’s future, deep conflicts can arise that can be very difficult to resolve. Other problems can include; when the founder wants to retire, should he be allowed to keep hold of his shares and carry on drawing dividends? Should he be allowed to vote on future directions of the company? What if a shareholder sets up their own business in competition with the company?

Situations like this can be potentially crippling for a business. So much time and effort from management goes into resolving the disputes that the business itself suffers. A stand-still in decision making doesn’t benefit the business in anyway and reaching a final decision can be a very long, not to mention costly process.

All of these situations can be avoided by putting together a well thought out shareholder agreement. Careful thought and forward planning early on in the business’s life can avoid big problems like shareholder disagreements further down the line. A shareholder agreement is a private document between the individuals that it concerns.

Some of the matters that can be covered in a shareholder agreement include share valuation, decision making, income distribution and succession. The way in which shares are handled can be dealt with in a set of “pre-emption” rights and these rights will usually give existing shareholders first refusal if any other shareholders want to sell. If it is agreed in the shareholders agreement that shares can only be owned by someone working in for the business, then pre-arrangements to force a share-transfer can be made in the event that a shareholder leaves.

An agreement can state that certain activities like pointing the business in new directions require all or a given percentage of shareholders to agree before they go ahead. This means that the minority shareholders will have a much bigger say in how the company is run.

Of course, how much detail you go into with your agreement is completely up to you, but if something is not covered in detail and a dispute arises later on, then a quick and decisive solution will be next to impossible.

As Graeme Provan of Tolhurst Fisher LLP stated “anyone setting up in business needs a professionally drafted agreement from the outset to avoid problems later on.”If you are having issues like this within your company, you should contact Tolhurst Fisher, they are based in Chelmsford, Essex and provide specialist solicitors in chelmsford Just click on solicitors in Essex

Share and Enjoy:
  • Print
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Mixx
  • Google Bookmarks
  • Technorati

Tagged with: • • • • • • •

Filed under: Management

Like this post? Subscribe to my RSS feed and get loads more!