Business Agreements
Wherever you invest your money and/or time into running a business with one or more others, whether friend, family or purely professional, you should put in place an agreement to govern the business relationship.
A good agreement should detail how the business is to be set up, how it is to be run – both day to day and in respect of major decision making, and what is to happen if the relationship is no longer to continue. This may be because the parties have fallen out, but equally it may be because of family commitments, death or illness or hopefully because the business has been so successful that one or more of you wants to sell up and enjoy the proceeds!
The agreement will almost certainly not cover absolutely every eventuality, but importantly it will provide you with a framework, over and above the default legal provisions, which reflects the intentions and agreement of the parties and can be used to avoid long drawn out wrangling in the event of a disagreement. You probably won’t even need to get it out of the drawer when all is going well but it may be invaluable to see what was originally intended several years down the line when the parties may have differing and possibly conflicting views.
A shareholders agreement is a private document in addition to the articles of association of the company. The advantage of this is that it does not have to be filed at Companies House and no-one but the shareholders need know what has been agreed. It may govern, amongst other things, matters that require the unanimous consent of the shareholders, whether each shareholder has a right to appoint a director and, significantly, dealings with shares. Should they be offered to the existing shareholders before sale to a third party? What would happen if one of the shareholders were to die? It is necessary to have an agreement to avoid finding yourself in business with a family member who has no interest in your company.
Without a partnership or LLP agreement much of the relationship will be governed by the 1890 Partnership Act or the more recent LLP regulations. You will almost certainly find that one or more of these default provisions would contradict what you would want the position to be. For example, under the existing law there is no automatic right to expel, or even suspend, a partner for wrongdoing. In order to be able to take this action, it must specifically be contained in an agreement between the parties.
Your shareholder, partnership or LLP agreement need not take a lot of time, or be very expensive to put together, but it can be guaranteed that it will save you time, and most importantly money, in the future.
Jessica Roberts
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