Why you need a Shareholders’ Agreement for your family business
Why you need a Shareholders’ Agreement for your family business
Avoid problems in the future, however unlikely you think they are, by drawing up a Shareholders’ Agreement for your family business. Let’s find out more.
When people start a business with their family members, optimism is the order of the day. You’re going to create something unique together, grow together and make money together. Nothing is going to go wrong, because ‘you’re family’.
Beware of this misplaced optimism. Things go wrong, even in family businesses. In fact, when family members fall out, it can be even more bitter and harder to resolve, because you’re so close personally.
The way to safeguard your business and your family relationships is to draw up a Shareholders’ Agreement when you start up. Hopefully, it will just sit in a drawer and you never have to use it, but should you need it, you’ll be glad it’s there.
In this article, we’ll look closer at Shareholders’ Agreements - what they are, what is in them and why you need one.
What is a Shareholders’ Agreement?
A Shareholders’ Agreement is a legally enforceable contract between the shareholders and their company. It serves to regulate the relationship between shareholders, detailing their rights and obligations. It can be a confidential document if the shareholders wish.
When family members run a business together, it should help each person know where they stand.
What is in a Shareholders’ Agreement?
Every Shareholders’ Agreement could be different as there are no set rules. However, a Shareholder’s Agreement will typically deal with:
How to handle future disputes should they arise
Whether (and how) a shareholder can transfer their shares
Protection for minority shareholders
What to do if a shareholder dies or loses mental capacity
Who has the authority to make certain decisions
Why do you need a Shareholders’ Agreement in a family business?
You may not think you need to go to the trouble of drawing up a Shareholders’ Agreement in your family business, especially if you are just starting out. But, there are several risks you take if you don’t do it.
Family dynamics are strange things. Family members, especially brothers and sisters, can argue about the smallest things. Do you really want to derail your business over seemingly inconsequential matters like job titles or the size of an office? It happens.
As time goes on and your business grows, the need to have everything written down and legally binding grows with it. In businesses that span generations, you frequently see sons want to do things differently from their fathers, for example. Then, they clash and the business suffers. If you’ve seen the show Succession, you will know what we mean here.
A Shareholders’ Agreement lets everyone know where they stand from day one. It sets out the share someone has in the business and how they are entitled to use it. It lets everyone know who has a veto on decisions. Finally, if things get too much, it details how people can get out of the business.
You have a good relationship with your family members. That’s why you’re starting a business with them! A Shareholders’ Agreement helps you keep it that way.
Find out more from Couchman Hanson
A Shareholders’ Agreement doesn’t just safeguard your stake in your business; it can safeguard the business itself.
If you are starting a business with other people, even family, it’s time to talk to Couchman Hanson. We can help you draw up clearly-written a Shareholders’ Agreement that brings peace of mind to both sides.
At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits our values of integrity, honesty and authenticity.
If you would like to find out more, call Couchman Hanson on 01428 722189 or email enquiries@couchmanhanson.co.uk