When you are embarking on a new business venture together, a shareholders’ agreement is typically not the first thing that springs to mind when it comes to working out how each of you can reach the same goal by pulling together your resources. It’s common to hear about friends or family members who have gone into business together and flourished for years, only for a major dispute to result later down the line leading to the business crumbling.
Disputes often arise between the shareholders over expenses, profits, liabilities or even the level of control that is held over the business– which can have harmful consequences if not dealt with at the outset.
A shareholders’ agreement (also commonly known as a Joint Venture Agreement) is a contract that is entered into between each of the shareholders and sets out the way in which the joint venture should be run from the start.
What Should Be Included in a Shareholders’ Agreement?
While there are no particular guidelines as to what terms should be included in a shareholders’ agreement, they typically include an outline of the roles and responsibilities of each shareholder as well as how the liabilities, expenses and profits from the venture will be divided between each of the shareholders.
Whatever the type of structure, all joint ventures share the common view of addressing a particular business goal between two or more partners with a commitment to work together to achieve those goals. It is therefore vital to set out this commitment in a shareholders’ agreement by outlining each shareholders’ expectations, not only is the business then protected, but the relationship between the shareholders is protected too.
Unlike the Articles of Association for the Company, the shareholders’ agreement is a private document which does not need to be made available for inspection by members of the public at Companies House – meaning that shareholders’ agreements can deal with those more sensitive internal management matters such as directors’ remuneration or non-compete provisions that otherwise wouldn’t be included in public documents.
While shareholders’ agreements are commonly used in private companies and made between the shareholders of that company, joint venture agreements are also frequently used by individuals working in other types of businesses, such as partners in partnership together.
If you require advice on the drafting of a shareholders’ agreement, Farleys’ corporate law team can help. Call 0845 287 0939 or email us today.