Why your business needs a Partnership or Shareholder Agreement

Here’s a simple question – when you started your business did you put in place a Shareholder or Partnership agreement? You could be forgiven for pushing this to the bottom of the pile whilst you focus on building and expanding your business but you don’t want to be caught out later down the line thinking “we really should have put this in writing”.

The Partnership or Shareholder Agreement Q&A

Question:  When a Shareholder who works in the business leaves and is employed by a competitor, how can you stop them from retaining their shareholding?

Answer:  All shareholders should sign a Shareholder Agreement.  This will say exactly what happens when a shareholder leaves the business (usually they must sell their shares) and gives “pre-emption rights” to the other shareholders, in other words first refusal for purchasing the shares.

Question: You have set up in business with a close friend or family member as a partner.  What happens if you have a serious argument or falling out and one of you decides that they no longer want to be involved?  What if they decide to start a competing business in the same area – can you stop them?

Answer:  All partners should sign a Partnership Agreement.  This includes important things such as how profits are to be split and what happens if one partner wishes to leave or even dies.  The agreement can also include restrictive covenants on the Partners in relation to competing with the business if they leave the Partnership.

Partnership and Shareholder agreements can cover all of the common things that might occur in the business as well as specific concerns. They ensure that every party knows where they stand, what their obligations are, and what will happen if there is a dispute.  Many businesses are set up without the agreements in place and while things are going smoothly it gets put to one side.  It’s only when things get difficult that they wish they had sorted the paperwork out in advance.

To find out how you can put an agreement in place to protect your business in the future contact a member of our employment law team for help.

 

The Backhouse Solicitors Team

Tel:                  01245 893400

Email:              [email protected]

Web:                www.backhouse-solicitors.co.uk