Running a business with someone can be very rewarding but it is important that you and your business partner have comprehensive documentation in place to deal with situations that can arise in the future. Using the case study of Debbie and Richard, the company commercial experts at Neves Solicitors in Milton Keynes outline why protecting your business interests with a shareholder agreement is essential.
Debbie and Richard run a successful printing business. They have worked together for 25 years. Debbie is 58 years old and Richard is 50 years old.
Debbie holds 75% of the issued shares. Richard owns the other shares and both are directors. However, Debbie has decided that she has had enough in the printing industry and wants to sell the business.
Richar, on the other hand, feels that he still has at least another ten years until he is in a position to retire.
Meanwhile, a competitor has expressed an interest in acquiring the business but only if he acquires all the shares so that long-standing contracts that the company has with key customers remain without having to be assigned or novated as part of a sale of the assets and goodwill. For obvious reasons, he is also not interested in acquiring only part of the shareholding but Richard will not agree to sell his shares – particularly to this competitor – as they had fallen out over a customer years before.
Debbie has always understood that with 75% of the shares in the company, she could control it and make all the decisions. She needs the money from the sale of the business to be able to retire and is extremely frustrated to discover that she cannot retire when she wants to.
There is no shareholder agreement in place and, without one, there is very little that Debbie can do. A shareholder agreement could have included a provision that if the majority shareholder wanted to sell the business, the minority shareholder could be forced to sell their shares, provided that the same terms were offered to that minority shareholder, such as price per share. This is known as a “drag along” clause and is very commonly used by majority shareholders.
Do you need to set up a shareholder agreement?
Talk to Neves Solicitors. Our specialist commercial solicitors will explain how the agreement works, what is expected of each business partner, what happens if a partner dies or decides to leave and how to deal with disputes.
About Neves Company Commercial Team
The Company Commercial team of experts have many years of experience in a broad range of company/commercial matters, ranging from company sales and acquisitions, investment, fundraising and lending agreements, corporate reorganisations, shareholder protection, employee incentives and options (including EMI options), franchise agreements, management agreements and partnership matters. Neves also assist a number of clients with wider-ranging commercial documents including IT/software licences/agreements, general commercial agreements and commercial property-related documentation.
Main picture: Meet the Company Commercial team at Neves Solicitors: (from left) Jessica Williams, paralegal; Stewart Matthews, managing partner and head of company commercial; associate Kim Sayers; senior associate Simon Porter.