If your business is run as a partnership or you have shareholders with a financial interest in your company, it is important to put in place a formal, legally binding agreement.
Whilst no-one goes into business expecting things to go wrong or disputes to occur, having a partnership or shareholder agreement in place provides certainty and peace of mind for all concerned.
What is a partnership agreement?
The main purpose of a partnership agreement is to protect the partners’ investment in the firm and to establish a fair relationship between them.
It defines the share of the profits (and losses) along with the responsibilities and rights for each partner.
What should be included in a partnership agreement?
A partnership agreement sets out detailed and practical rules for the firm and its partners, and will generally cover the following:
- Business and partner details
- The amount of capital invested by each partner
- The percentage of business ownership by each partner
- Job description and details of what each partner will bring to the business
- Decision making, profit sharing and voting rights
- Wages, expenses and holiday entitlement
- Liability sharing
- Finance matters and cash management
- Illness or incapacity contingency
- New partner terms and conditions
- Retirement, dismissal, partner exit planning and business dissolution
What is a shareholders agreement?
A shareholders’ agreement sets out the relationship between the shareholders, how the business will be run and what happens if difficulties arise.
Unlike Articles of Association which are governed by corporate law, a shareholders’ agreement is dealt with under contract law. It is a private document and so does not need to be registered with Companies House or made public.
What should be included in a shareholders agreement?
A shareholders’ agreement deals with some or all of the following matters:
- Purpose of the company
- Matters requiring unanimous consent
- Matters relating to shares
- The appointment of directors and their responsibilities
- Company finance
- Dispute resolution
- Powers held by shareholders
- Exit strategies for shareholders
How do I set up a partnership or shareholders’ agreement?
A member of our company commercial team will be able to provide you with advice and help you to draw up the agreement, ensuring that it is legally binding and provides the necessary protection for you and your business.
What happens if there is a dispute with a partner or shareholder?
Disagreements can occur in any partnership or business with shareholders.
The good news is that having an agreement in place will provide a pre-agreed ‘route map’ which will provide all parties with procedures for settling disagreements.
If your business is dealing with a dispute involving either a partner or shareholder, it can be helpful to have expert legal support and our specialist dispute resolution team will be able to advise you on the most appropriate and cost effective way to successfully overcome any issues.
For more information on partnership or shareholder agreements, please contact us today.