Ultimately, it is foreseeable when entering into a new company structure that things may go wrong with your working relationships. It is most beneficial to resolve future issues at the outset with clear cut agreements for these situations which is why shareholders’ agreements are very important to your business.
If a complex issue is foreseeable, appointing a third party arbitrator to determine a fair and reasonable agreement when the issue arises may be the easiest way to keep the relationship amicable at the outset without losing the opportunity altogether. This third party arbitrator could order one party to buy out the aggrieved party at a price agreed, either break up or fair value, for example.
It is very important, when starting your business, to ensure all your company documents are kept in order. These will include who has controlling ownership and how specific problems will be dealt with in the future. By planning for the future in this way, any issues that you have thought about will have been dealt with and those which you have not foreseen will have all the necessary documents in order to make litigation easier and more effective if and when the time comes.
If it is too late in proceedings to draft a shareholder’s agreement, it is best place to look at the Articles of Association as these can highlight something to help the position. However, in most cases, companies use the standard Model Articles and these will not help for a specific issue only related to your business. If this is the case, careful negotiations will the best step forward. The parties at issue need to agree in a manner which is not detrimental to the business. If this is not possible, a party can apply to the Court for the business to be just and equitably wound up. This should only be used as a last resort and is all too often expensive and timely.
The length of time and costs related to setting up a shareholder agreement can vary due to the complexities of your business but it always outweighs the cost/ benefit analysis of failing to plan for the future. It is always important to seek advice on these matters.
This article was provided by Elemental CoSec, a leading Company Secretarial Services UK expert who is able to advise you on your shareholders’ agreement, so please get in touch with them if you have any questions.
This article is provided for information purposes only and is of a general nature. Specific advice should always be obtained if you are in any doubt as to your legal responsibilities and no liability is accepted with respect to this article.
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