New entrepreneurs urged to take simple steps to avoid future disputes

News Article

Following a report which has revealed that Basildon is amongst the top areas in the UK for business start-ups, the commercial law team at Palmers are urging new entrepreneurs to take steps to ensure that any future ‘battles in the boardroom’ do not wreck their business ventures.

The guidance comes after Basildon was named as being amongst the UK’s top 100 local authority areas for start-up businesses in 2017, with more than 1,700 new businesses launched, according to research from the Centre for Entrepreneurs.

Luke Morgan, a Partner with Palmers, who specialises in Commercial Law, said: “It is great to see so many new businesses being formed in our local area, but it is also important that the shareholders in those businesses make sure they are protected against future disputes.

“No-one knows what the future holds and even the closest of business relationships can sometimes turn sour, which is why it pays to plan for all eventualities.

“The best way you can do this is by putting in place a Shareholders’ Agreement, ideally at the outset, but otherwise as soon as you possibly can.

“This will set out in detail the rights and responsibilities of each shareholder and the arrangements that will apply in the event that a dispute arises or a shareholder becomes incapacitated, for example.

“Shareholders’ Agreements are highly effective at preventing disputes arising in the first place, offering vital protection to all parties.

“While companies may have Articles of Association in place, which fulfil a similar function, it is also advisable to draw up a Shareholders’ Agreement as that is governed by contract law, rather than company law. This means it can be amended at any time by mutual consent.”

If the worst should happen and a dispute does arise, it is important to seek expert legal advice as soon as possible.

Luke added: “In such situations, shareholders should stay calm and avoid making rash decisions that might later prejudice their position, whether as a shareholder or director.

“If the dispute is not handled sensitively, the consequences could be drastic – having negative repercussions for all directors and shareholders involved with the company, regardless of whether or not they had any involvement in the initial dispute.

“Speaking to a solicitor is ultimately the best way to gauge your options and at an early stage.”

For advice and support in drafting a Shareholders’ Agreement or for help with disputes, please contact us.