If you own your company jointly with another person, regardless of whether they are your mate, your brother, sister or an investor, you need to have a shareholders’ agreement in place.
A shareholders’ agreement acts as a roadmap for how you want decisions of the shareholders and directors of the company to be made and, importantly, what will happen if unexpected events take place. If a shareholder or director needs to exit suddenly, whether due to a relationship breakdown, illness, death or some other external reason, a well-tailored shareholders’ agreement will guide the business owners through a step-by-step process to facilitate that exit.
A good shareholders’ agreement takes away the need to make tough and emotional decisions, as those decisions have already been made when you – the business owners – first went into business together. The agreement should cover directors’ remuneration, decision-making, dividends and raising capital, and, most importantly, set out what will happen if an event triggers a shareholder’s exit from the business.
A good shareholders’ agreement does not need to be expensive or complicated, but it does need to be tailored to your business and the individual circumstances of the business owners. It should also be reviewed periodically to ensure it is still relevant.
If your company does not have a shareholders’ agreement, the start of a new financial year is a great time to sit down with your business partners and to put in place.
Reproduced with permission: Do I really need a Shareholders Agreement? Copyright 2019, Succession Plus.