Pitfalls of not legalising shareholder and partnership agreements

Year Published: 2011

Business people are having to work harder just to tread water, let alone grow in this economic climate. With all the extra day-to-day pressures, many business leaders are neglecting to put in place written partnership and shareholders’ agreements.

Agreements should be an essential part of businesses’ DNA, but for many this is just not the case. There are a variety of circumstances which can leave companies in difficult territory. One recent example arose when unfortunately a shareholder died suddenly without leaving a will. His shares in the business passed to a distant relative who had no knowledge or experience of the business. As a consequence, this person was entitled to vote at meetings in the business.

In this particular case, a simple shareholders agreement would have ensured that the other shareholders in the business were given an option to buy his shares. If a resolution can’t be found in this particular case, then this could be the end of the business, resulting in problems including possible adverse tax consequences, expensive and lengthy litigation and employment issues.

Agreements are not just about protecting against unforeseen circumstances – they are also essential if business partners or shareholders are preparing a business for sale. Mergers and acquisitions are slow at the minute, but this is likely to pick up over the coming months as the market continues to gain confidence, and companies intending to take advantage of this re-emergence should get their houses in order now to avoid potential expensive problems later.

For further information please do not hesitate to contact Kaye Whitby on 0844 391 5830.

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