Do I really need a shareholders’ agreement?
We know that when you’re busy starting up your business, paying lawyers to draw up a shareholders’ agreement is probably the last thing you want to do.
However, not having an agreement in place can lead to real problems. Consider how you would feel about the following scenarios:
- Your co-founder sells his or her shares to an outside buyer without giving you a chance to buy them first.
- The majority shareholders agree a great deal for the sale of the company, but this is blocked by a minority shareholder.
- The other shareholders vote to remove you from the board of directors and you have no right to be reinstated.
- An employee shareholder leaves to join a competitor but keeps his or her shares.
- The assets of the business are sold without your consent.
- Your shareholding is diluted by a share issue in which you are not invited to participate.
Arguing about these issues and taking legal action to try to resolve them as they arise can be extremely stressful and expensive. Potentially stopping you from achieving your business ambitions.
Fortunately, a shareholders’ agreement gives you an opportunity to discuss and reach an agreement on these, and many other situations, with your co-founders at an early stage. In the long run, it is much easier (and cheaper!) to tackle these issues from the outset when everyone is on the same page, rather than leave it until relations have broken down and matters have become contentious.
Of course, every founder and business is different. It is a good idea to work with lawyers who will listen to your individual concerns and prepare a bespoke agreement, rather than rely on an “off the shelf” document that might not work for you.
Find out more about shareholders’ agreements
Tom is a Partner in our corporate team with over 10 years of experience of advising businesses from startup through to exit. Tom previously worked as a senior in-house counsel at one of the UK’s largest equity crowdfunding companies, where he helped more than 200 high-growth companies to raise £220m.
Tom would be delighted to offer a free, no-obligation initial consultation (via phone or Teams) to get to know you and understand your business priorities and legal needs.