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The Importance of Shareholders Agreements

The thoughts of Richard Osborne on many subjects over the years.

The Importance of Shareholders Agreements

In the day to day activities of my Quick Formations business we frequently deal with people who are setting up a business with a friend or family member, or even an old work colleague. These people are always keen to work together, they have a shared vision or dream, and know they are going to be successful.

Unfortunately for 50% of these people, their relationship is going to break down and their business is going to suffer significantly as a result. The meeting I had this morning is no exception.

We have two married couples setting up in business with their business owned 25% by each person. Everything straight down the middle, it couldn’t be fairer. They were all very keen to get started, and really motivated to make a success of their new business venture.

You only have to look through some of the posts in the Legal section of the UK Business Forums to see exactly how many people find themselves stuck in a situation with a business partner they no longer want. It’s a sad story, but one that could so easily be resolved by spending some time working out how to deal with all sorts of situations before they arise. How will each person be rewarded, salaries and bonuses. What about if someone wants to break from the partnership? You agree all this at the start, whilst you are still talking to each other and not through solicitors!

I’ve recently got involved in a new business venture with someone else called UK Golf Forum, and acquired a stake in another business venture called Calltracks. One of the first things I ensured was done in both instances was have a shareholders agreement drafted and signed, because I was one of those unfurtunate people through bitter experience lost hundreds of thousands of pounds through a bad business experience. I had no shareholders agreement in place, and did not take proper legal advice. I’ve since learnt from that experience, and found the experience a valuable learning curve – although I was pretty upset at the time as I’m sure you can imagine.

I used two firms to write my shareholders agreement for me. The first for UK Golf Forum was written by a gentleman called Ian Mason from Mason Bullock Solicitors, and the one for Calltracks I had written by a lady called Andrea Wyld from Franklins Solicitors. I received an excellent service from both firms and can highly recommend both, my advice is call both and deal with the one you feel that grasps a better understanding of your business. This will be important when drafting your shareholders agreement for you.

Comments (2)

  1. […] When I first started up in business my first business was in a 50/50 partnership, but we didn’t really agree what each of our objectives were or what each others roles were going to be in the business. Needless to say, after a couple of years the business relationship broke down. Just like 50% of all business partnerships, hence my previous blog about the importance of have a Shareholder Agreement. […]

  2. […] Just like 50% of all business partnerships, hence my previous blog about the importance of have a Shareholder Agreement. Since then I have always taken the view that I wanted to own 100% of my business interests, never […]