There can often be a huge amount of work and thought that goes into starting a new business. However, a key area which people often fail to consider is what would happen if there was a falling out between the founders of the business. There is often the mentality of “it won’t happen to us”. A little thought and action at the outset could save all concerned from a lot of cost and worry in the future. Below are our top tips for protecting you and your company against future shareholder disputes.
- You are likely going to spend a lot of time with the co-owners of the business. It is important at the outset to make sure that you all trust each other and that your personalities, goals and skills are aligned.
- It’s best to plan for the worst case scenario. In an ideal situation your relationship with your co-owners will remain harmonious. However, the reality is that disputes between shareholders do happen. If a falling out was to take place, would company law deal with matters how you would want?
- Rather than relying on company law, having a shareholders’ agreement prepared at the outset will ensure that all eventualities are dealt with as you want. It is much easier to agree how things are to be dealt with whilst you all get on, rather than waiting for a dispute to occur.
- Disputes can be extremely costly, time consuming and stressful. Including provisions in the shareholders’ agreement to use alternative dispute resolution (such as mediation and arbitration) in the event of a dispute can reduce the costs, time and stress involved.
- Directors are employees too. At the outset it is important to agree each director’s role, salary, holidays, targets etc and document these in a service agreement.
- Keeping accurate and up-to-date records. Keeping accurate and up-to-date financial records, noting decisions made and taking minutes of meetings can make future disagreements easier to deal with.
- Communication and compromise are absolutely key to avoiding disputes. Although compromising may hurt a little at the time, it won’t be as painful as a lengthy legal dispute.
To speak to one of our corporate solicitors about protecting your business against shareholder disputes by way of having a shareholders agreement drafted, or about any other corporate matter, then please do not hesitate to get in touch.