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.

Recent Changes to Pay and Conditions

Many local employers find that they fall foul of complex employment law provisions, particularly those concerning maternity rights and the minimum wage. These are two areas where regular advice on the current legal requirements is useful.

From October 2005, the adult rate of the national minimum wage for those aged 22 or more will increase by 20p from £4.85 per hour to £5.05 per hour. From October 2006, they increase again to £5.35 per hour. The youth rate for 18-21 year olds will increase to £4.25 per hour in October 2005 and £4.45 per hour in October 2006. There was no increase in October 2005 to the £3 per hour rate for 16-17 year olds. However, the Low Pay Commission is keeping this under review and will report back in 2006.

Another major change from 6 April 2005 is the obligation to consult employees. Employees in larger organisations gain new rights to be informed and consulted about developments in the workplace. The legislation implements the EC Directive on Informing and Consulting Employees and is based on a framework agreed with the CBI and TUC.

Employees in organisations with 150 or more employees will now have a right to be informed and consulted on a regular basis about issues in the organisation that they work for. Organisations with 100 or more employees will come within the scope of the legislation in April 2007. Those with 50 or more employees will be included from April 2008.

However, the requirements of the legislation do not necessarily apply automatically. An employee request must be made by at least 10% of the employees of an organisation (subject to a minimum of 15 employees and a maximum of 2,500 employees). Also, existing agreements on information and consultation may continue where they enjoy the support of the workforce.

The new law is designed to encourage employers, employees and their representatives to agree information and consultation arrangements that suit their particular circumstances. It is not designed to spell out the subjects, method, timing or frequency of the arrangements that are allowed. Agreed arrangements may cover more than one company, or different processes may be established in different parts of an organisation.

In situations where no agreement on arrangements is reached between employer and employees, standard provisions based on the Directive apply as a fallback. These require the employer to inform employee representatives about the organisation’s activities and economic situation. It also requires them to consult on employment issues and major changes in work organisation or employees’ contractual relations.

If you need advice on your obligations as an employer, please contact Andrew Bryan on 023 9221 0170 or by email.