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Breaking up is hard to do so it’s best to be prepared

By David Wilson from Worthingtons Solicitors

Published 19/07/2016

David Wilson from Worthingtons Solicitors
David Wilson from Worthingtons Solicitors

Lawyers know all about exits. Whether clients are going through divorce or ending contractual relationships, including employment, we are familiar with how fraught parties can become and cases are all too often more difficult in the absence of written documents to govern how relationships should end.

The UK may or may not be able to reach an amicable exit with Europe.

That is up for debate. Certainly anyone looking at Article 50 of the Lisbon Treaty will be forgiven for thinking it is vague and promotes uncertainty.

If you are thinking about forming a company with others, don’t leave yourself open to ambiguity and at least attempt to ensure certainty by putting a Shareholders’ Agreement in place. 

All too often, companies are set up by two or more individuals with limited if any thought being given to how the relationship between the individual shareholders is to be governed moving forward, or indeed what will happen if a relationship breaks down.

Don’t simply download a document from the internet. 

Take the time to consult a solicitor to put in place a bespoke agreement, the terms of which will be clear and known to the parties at the outset. 

For example, you should think about what happens to your shareholding if you decide to leave. 

If there is no agreement in place to set out the mechanisms for valuation, you run the risk of not receiving full value for your shares. 

It is rare for shareholders to agree entirely on all aspects of the running of the business. As time moves on, it is common for control of the company to change if one party is doing more than another.

Should the more active party be entitled to a salary as well as dividends?

Common disputes that we see arise involve dividend payments, imbalances in activity between shareholders, and fraudulent activity.

If a company has grown since it was first formed, now may be the time to review the relationship between the shareholders on a formal basis and put a Shareholders’ Agreement in place. It is not too late. Unless a Shareholders’ Agreement is in place to govern the relationship, and sets out the clear expectations, it may be very difficult, complicated and expensive to clarify shareholders’ rights and directors’ obligations whenever relations sour.

David Wilson, commercial partner at Worthingtons Solicitors, Belfast, is experienced in advising on and dealing with negotiations and disputes concerning Shareholders’ Agreements

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