Organizing Your Company

Too many businesses in the UK operate without a written agreement between partners and shareholders. Then when things go wrong or one person wants to leave the business it is not clear what should happen.

This is a common problem. When a shareholder or partnership dispute arises, the first thing solicitors ask to see is the written agreement but often there is none. Yet it does not take long at the start of a business relationship to draw up a document saying how things are organised. We would usually deal with issues such as how profits are shared, what happens if someone dies or wants to leave and when shares for a limited company can be bought or sold. Frequently, directors also do not have service or employment contracts when they ought to. A company’s Articles of Association are not a substitute for a well drawn shareholders’ agreement. Different issues arise depending on the number of shareholders. A “50/50 two director/shareholder company” will be a different entity to a “5 shareholders with 20% each” body. It is wise to have a list of matters to protect those with a minority of the shares in a company from changes which could otherwise be forced on them, such as dilution of their shareholding or a change in business focus.

There will be some changes to the law in this field when the Company Law Reform Bill is enacted, but it will not affect shareholder agreements in a major way. It will codify in one place the law on directors’ duties, which will prove very helpful for directors.

Call Michael Goodwin on 01329 822333 for information on this area.