Lawyers from our firm are advising entrepreneurs to take steps now to help prevent disputes with business partners in the future.
Specialists in commercial law from Palmers Solicitors say that all limited companies that are owned by more than one individual should have a Shareholders’ Agreement in place.
We issued the guidance after Basildon was revealed to be 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.
Matthew Johnson, Associate, 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.
“The best way they can do this is by putting a Shareholders’ Agreement in place, ideally at the outset, but otherwise as soon as they 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.”
He said that 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.
However, it is important to seek advice as soon as possible in the event that a dispute does arise.
Luke Morgan, a Partner and Commercial Litigation solicitor, said: “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.
“Therefore, speaking to a solicitor is ultimately the best way to gauge your options and at an early stage.”