Doing business with family and friends ? keeping it professional

What is a shareholder?s agreement?
A shareholders? agreement is the business version of a marital pre-nup.

It defines what happens if people want to go different ways.?It is a safeguard offering a set of terms to prevent complications further down the line, protecting the enterprise itself as well as your own investment.

An agreement will:

  • Set out rights and obligations;
  • Regulate the sale of shares in the company;
  • Describe how the company is going to be run;
  • Provide an element of protection for minority shareholders
  • Define how important decisions are to be made.
What should you include in your agreement?
The key provisions to include in a shareholders? agreement relate to:

  • Issuing and transferring shares ? including provisions to prevent unwanted third parties acquiring shares and how a shareholder can sell shares.
  • Providing some protection to holders of less than 50% of the shares ? including requiring certain decisions to be agreed by all shareholders.
  • Running the company ? including appointing, removing and paying directors, deciding on the company?s business, making large capital outlays, providing management information to shareholders, banking arrangements and financing the company.
  • Paying dividends.
  • Competition restrictions.
  • Dispute resolution procedures.
A final word of warning
Don?t end up in a complicated, distressing and costly legal battle down the line because you failed to get the basics right at the start.

Working with friends and family can be hugely rewarding but it pays to make sure you dot all the i?s and cross all the t?s before you start to trade.

Henry Catchpole is CEO of?Inform Direct.

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