Published in association with
RUNNING a business with someone can be extremely 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, we explain why protecting your business interests with a shareholder agreement is essential.
Debbie and Richard ran a successful printing business. They had worked together for 25 years. Debbie was 58 years old and Richard was 50 years old.
Debbie held 75% of the issued shares. Richard held the other shares and both were directors.
Debbie had decided that she had had enough in the printing industry. She wanted to sell the business.
Richard felt that he still had at least another 10 years until he was able to retire.
A competitor had expressed an interest in acquiring the business but only if he acquired all the shares so that longstanding contracts that the company had with key customers would remain without having to be assigned or novated as part of a sale of the assets and goodwill. For obvious reasons, he was also not interested in acquiring only part of the shareholding.
Richard would not agree to sell his shares, particularly to this competitor, as they had fallen out over a customer years before.
Debbie always understood that with 75% of the shares in the company, she could control it and make all the decisions. She needed the money from the sale of the business to be able to retire and was extremely frustrated to discover that she could not retire when she wanted to.
Neves says: “Without a shareholder agreement in place there was little that Debbie could 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 and what happens if a partner dies or decides to leave.
Contact the team on 0330 0945 500, email info@neves.co.uk or visit www.neves.co.uk
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