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In a family business, it is crucial to have a shareholder agreement to ensure there is consensus on key issues, to provide clarity, and to minimise the risk of conflict between family members – before issues arise. Having a well-drafted shareholder agreement can also help protect the family business and preserve family relationships over the long term.
A shareholder agreement is a legal document between the shareholders of the company. It should outline the terms of their ownership, including the rights and obligations of each shareholder, the management structure of the company, the process for transferring shares, and the resolution of disputes. This is to ensure all the shareholders are treated fairly and equally.
The shareholder agreement should be discussed, agreed, and executed by the company as well as each shareholder in that company.
The number one reason we are advised is because there are no issues within the business, but this is the perfect time to introduce an agreement. At a time when everyone is getting along, you can scenario plan and discuss what it would look like if someone wanted to leave the business or if someone needed money. If you wait until there is an issue within the business, the shareholders might never reach an agreement.
Throughout the course of a business relationship, it is likely that disagreements will occur between the shareholders. By having a document to refer to that sets out the agreed approach from the shareholders, it provides guidance on the steps to take, and allows for a timely and fair resolution between the shareholders. This also ensures that issues are addressed appropriately and mitigates the likelihood for any future disputes.
A shareholder agreement sets out the rules for the management and ownership of the company. It provides transparency and accountability to the shareholders and reduces the risk of fraud and mismanagement.
Different group of shareholders will receive a certain protection level from the agreements. In a family business, the founding shareholders often wish to maintain and protect their desired level of control in the company, whereas the minority shareholders require protection for their rights to ensure they have a voice in important decisions. Future investors look for clarity and transparency to understand the company’s rules. Having a shareholder agreement in place will protect all rights and responsibilities for each shareholder group.
Our team at Grant Thornton has extensive experience working with family businesses and can help facilitate the conversation to ensure all family members are heard. As you plan the fundamental requirements of your family business and consider having an agreement in place for all shareholders, it’s imperative the agreement achieves the desired outcome for all.
Contact our team of experts today for advice around your family business shareholder agreement.
Please note: Grant Thornton cannot prepare shareholder agreements. Please engage your lawyer to start this process and we can work with your solicitors to ensure the Shareholders agreement covers all areas to protect stakeholders.
