Shareholders agreements and partnership agreements – you need them!

Shareholders Agreements and Partnership Agreements

The more I see of business partnerships, the more they remind me of popular bands or song-writing partnerships. One thing is for sure – both could benefit from having either shareholders agreements or partnership agreements in place.

At one end of the spectrum, you’ve got bands like U2. Whatever you think of their music or Bono’s toe-curling messianic moments, the group’s four members have stuck together and made music – and huge amounts of cash – since 1976.

But few bands last the course in this way. Some endure tragedy, such as when the Who’s Keith Moon overdosed in 1978 or Nirvana’s Kurt Cobain shot himself in 1994. Other band members see mutual respect turn into desire not to be in the same room as each other. Simon long parted from Garfunkel, while Oasis’s Gallagher brothers are famed for their bust-ups.

Then there are the groups who split up, only for members to go off and do their own thing. Whether the Beatles broke up because of Yoko Ono or simply because everyone was coming down from the heady atmosphere of the 1960s, there’s no denying the Fab Four went on to do different things. Paul founded Wings, George hung out with gurus in India and John experimented with primal therapy – while Ringo memorably narrated Thomas the Tank Engine on children’s TV.

If you’re in business, you run the same risks as any of these bands or song-writing partnerships. You need to sort out who will decide what records to release (or products will be sold), or who decides when to take on a new member of the band (or co-director).You might start off with the best intentions, but if one of your partners or co-directors turns to drink, fails to turn up to gigs (‘business meetings’) or decides to lure your fans (‘clients’) to a newly-acquired paradise island (‘rival business) or die –then what happens who gets the insurance money and who can buy the shares?

 Agreements between business owners

The answer is to create shareholders agreements or partnership agreements while times are good – and draw it up with the right advisers, who know a thing or two about how and why people and businesses break up. These will usually be your accountant, your lawyer and your IFA.

(By the way, I’m going to stick to saying ‘shareholder’ and ‘director’ from now on. But what I say will apply just as much to partners or people running any business together.)

With the help of the right professionals, you can set up agreements that cover how decisions are made, who does what work, who sets salaries and so on. You can also set restrictive covenants which, for example, might say that if a shareholder leaves they can’t work within a certain distance, take business with them and so on.

Most importantly of all, if someone wants to sell out their interest in the business, you can make sure they can’t do it on their own. If it’s a case of one sells, all sells, then your business can’t be hijacked or destroyed by a single individual. And the beauty is that if a director decides to leave and start his own thing or join others in competition with the business of the “band”, then it is much easier to enforce these clauses in a shareholder agreement than it is in an employment contract.

As one lawyer said to me, the only time he has to handle shareholder disputes is when an agreement has not been drawn up. If you do the job properly, you address all the issues before they arise and then the agreement stays in the drawer – because there is no dispute.

So unless you don’t care what happens when one of your shareholders has a mid-life crisis, walks out and wants to sell up before becoming a drummer in a worse-side-of-dreadful thrash metal band – then make sure you talk to us today about getting that all important agreement in place.

Fortunately, at THP we really can work it out…