Shareholder and Partnership Agreements

A shareholders’ or partnership agreement is a contract between the shareholders or partners of a business that governs the relationship between them and ensures that everyone is on the same page. It helps prevent disputes and provides a clear framework for resolving any issues that may arise.

Why you need a shareholders’ agreement

Shareholders’ agreements are crucial for companies with multiple shareholders, especially if you are:

Starting a new business: a shareholders’ agreement sets the ground rules, making sure everyone knows their roles and expectations.

Bringing in new investors: a shareholders’ agreement can outline how an investor’s shares will impact the existing structure and decision-making processes, keeping a balanced power dynamic.

Facing potential disputes: a pre-existing agreement can provide a clear resolution path for shareholders, preventing conflicts from escalating and adversely affecting the business.

 What do shareholders’ agreements contain?

A well-drafted shareholders’ agreement typically addresses the following areas:

Setting out the rights of shareholders: this includes the right to dividends, to receive information, and to vote on company decisions. This ensures that all shareholders are treated fairly and avoids misunderstandings at a later stage.

How to resolve disputes: a resolution clause can provide a method (or methods) for settling disagreements between shareholders in a timely and cost-effective manner, preventing damaging legal action.

Termination Events: the shareholders’ agreement can stipulate the course of action that should be followed in certain situations, such as a shareholder leaving, dying, becoming ill or being declared bankrupt.

Transfer and value of shares: provisions can be inserted to regulate the transfer and value of shares, averting the company from being taken over by an unwanted third party. For example: they must be offered first to existing shareholders before an outsider.

Non-compete provisions: confidentiality terms and restrictive covenants put a stop to shareholders becoming involved in competing businesses.

Minority shareholder protection: the agreement can protect minority shareholders from being taken advantage of by majority shareholders, by specifying that certain key decisions require the unanimous consent of all shareholders.

 Why do you need a partnership agreement?

Without a written contract, a partnership arrangement will be governed by the Partnership Act 1890 (Act) which, in many cases, is not how the parties would choose to manage the relationship between them.  For example, without a written agreement:

• partners would split capital and profits equally, regardless of their initial contributions;
• partners would equally share any losses;
• admitting a new partner would require unanimous consent from all partners; and
• there is no authority to expel a partner.

The creation of a bespoke partnership agreement is recommended as it provides options for how you want the partnership to run, how to resolve any disputes, to prepare for the unexpected and most importantly, provide options where the Act does not.

What does a partnership agreement contain?

Examples of what a partnership agreement can include are:

• The commencement date and duration of the partnership
• How the profits and losses will be distributed between the partners
• The duties and administrative responsibilities for each partner
• Any accounts and banking procedures that the partners wish to implement
• Detail of each partner’s share of ownership
• How a partner can leave a partnership and how a person can enter a partnership
• How to prevent a partnership automatically dissolving on the death of a partner
• Establish decision-making processes, such as voting
• Decide methods for resolving disputes
• Set up procedures for partner retirement
• Detail grounds for expulsion
• Prevent multiple partners from leaving at the same time

Disputes arising between shareholders or partners?

If a dispute has arisen between shareholders and partners, you need specialist legal advice before the situation gets worse. Our dispute resolution team can advise you on your rights and the potential relief available to you.

Working with you to put the right agreement in place

At Laceys, we can plan, draft and review shareholder or partnership agreements that cover all the necessary areas so the partners or shareholders in your business can share the same expectations, make decisions in confidence, and avoid conflict.

Each business is unique, and so too is each agreement. We’ll take the time to understand your business, and the people involved with it, before drafting a detailed agreement that considers all of your needs.

For more information, please get in contact with our Company and Commercial Team.