Business & Corporate Law

Few people start business partnerships thinking they are going to fall out, but sometimes that can be a consequence of a failed business relationship. A shareholder or partnership agreement can help provide certainty as to what should happen, even in situations where business partners are no longer talking to each other.

Having something in writing can also act as a deterrent to allowing a business relationship to finish, as partners can see for themselves what would happen in the event of a parting of the ways and might not like where it would leave them. Instead of pursuing a certain line, therefore, a compromise might be reached which enables the parties to continue working together.

Shareholder and partnership agreements can also provide an exit route from a business, which might not otherwise exist. For example, it is not usually possible to force someone to sell their shares in a company, nor to force someone to buy someone else’s shares. In such circumstances, the continuing party is often able to drive a hard bargain in relation to the price of the outgoing party’s share. Option arrangements can be created to remove these problems, with shareholders being able to insist on an independent party to fix a fair value for their business interests.

Typically, a shareholder or partnership agreement will provide for:

• Prohibitions on certain actions without the consent of the other parties (or a majority of them)
• A dividend policy
• A fair value of an exiting party’s share
• A right of pre-emption/first refusal in the event of any shares being put up for sale
• Restrictive covenants to prevent an outgoing party competing with the business