Shareholders’ Agreements

Any business that has more than one shareholder should have an agreement to cover how they manage the relationships between them, in the tricky situations which will almost certainly occur in the lifetime of the enterprise. In a marriage it would be called a pre-nup i.e. a prenuptial agreement. Shareholders are sort of married to each other and should therefore try and think through the potential pitfalls and pratfalls of the business and how to come through to the other side intact.

In the idealistic and euphoric atmosphere of the beginnings of a business – sometimes (usually) started with friends or family – it’s very easy to imagine that you would never fall out, or that Leadership might become an issue, or that all sorts of other problems that have arisen (which had previously never challenged your close relationship in the past) could become an issue in the here and now. Better to try and “pre-solve” the problems, or think about how you might untangle yourself from a sticky situation, whilst you still ‘love’ each other.

One thing is for sure, not having thought these things through will almost inevitably lead to the hiring of lawyers to untangle things (if that is even possible) in an atmosphere that might have become dark and combative. Recalcitrant, bitter and twisted minority (or equal) shareholders drain the lifeblood of the business and its leading personalities, and the enterprise (sadly even a good or brilliant one) will suffer and probably even fail.

SO GET A SHAREHOLDERS’ AGREEMENT. Investors will certainly hope that there is one already in force with the founding or existing partners.

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