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Shareholder Agreements: The Often Unknown Effects

And the dangers of not having one ...

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Shareholder Agreements define the boundaries of the responsibilities and requirements of those that own the business. Imagine it's like a fence between you and your neighbour ...

A shareholder agreement can stop all sorts of issues from arising!

A shareholder agreement can stop all sorts of issues from arising!

copyright: bowie15 / 123rf

You may have the best relationship in the world with them, or they may even be your family, but you still want to know who's responsible for what and strong fences certainly do make for good neighbours.

"In a business, a shareholder agreement can be that fence!"

I've lost count of the number of times I've seen business partners fall out and the companies they've worked so hard to grow simply implode. It's a terrible thing to witness when a shareholder agreement could have stopped it from happening.

The classic example of a boardroom dispute is that one of the shareholders believes that they're putting in a lot more time and effort into the business than the other shareholders are doing.

Even the most straightforward shareholder agreement needs to include:

  • how the shares are divided and who's got the final authority

  • how many hours each is expected to give to the business each week

  • what they're allowed to take out as remuneration and how often

  • an exit strategy

  • a defined conflict resolution framework

  • a deadlock solution

A shareholder agreement can keep all parties happy and help the business tick along smoothly!

Too many times people set up companies with friends and relatives and do not consider protecting their interests in the company until it is too late. The articles of association of the company may not offer a shareholder full protection so creating a shareholder agreement certainly makes sense.

"Would you like to know more?"

If you're thinking of going into business with others, or are in business already and need to protect your interests, you'll want to find out more about shareholder agreements. Give me a call on 01908 774320 or click here to ping me an email and let's see how I can help you.

Until next time ...

Business Godparent

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More about Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.