Partnership and Shareholders’ Agreements
Partnership and shareholders’ agreements are important to the smooth running of businesses. It is easy to overlook them when setting up a new business, but they are a vital part of ensuring that a sound legal framework is in place, which will give clarity to those involved and help to avoid disputes in the future.
By putting a formal written agreement in place, partners or shareholders can have the certainty of knowing how various eventualities will be dealt with over the course of a business’s life. This allows those involved to plan for the future and to approach transactions knowing their rights and responsibilities.
It will also go a long way to avoiding misunderstandings that could escalate into legal disputes. In the event that a disagreement does arise, the dispute resolution process contained in the agreement will provide a roadmap for attempts to resolve the issue.
Based in Gloucester, Tayntons’ corporate law solicitors can advise you on putting the right documentation in place to protect your commercial interests in a partnership or company.
We offer a free initial consultation for corporate clients so we can discuss your needs, then explain how we can help and the likely costs involved.
How we help businesses with partnership agreements and shareholders’ agreements
While it is not essential to have a business partnership agreement in place when you enter into a partnership, if difficulties arise in the future, a legal agreement can help you resolve them.
If you do not put a partnership agreement in place, then the Partnership Act 1890 will apply. The Act will not necessarily be appropriate to your situation and you could lose out if you rely on it. For example, it gives each partner an equal say in proceedings, which can lead to a deadlock in decision-making.
If you are in disagreement with your partners, our commercial team have considerable experience in working to solve problems without recourse to the courts. For more information, see our page Commercial Dispute Resolution.
Have a question about partnership agreements? Take a look at our partnership agreements FAQs.
There are different ways of setting up a shareholders’ agreement, giving different rights to different classes of shareholder and we will ensure that your agreement accurately reflects the way in which you wish your company to be structured.
In the event that a dispute has arisen, we can advise you on the best course of action and negotiate to try and settle the issue on your behalf. For more information, see our page Commercial Dispute Resolution.
Have a question about shareholders’ agreements? Take a look at our shareholders’ agreements FAQs.
Partnership agreements FAQs
What is a partnership agreement?
A partnership agreement is a formal document setting out the terms on which you and your partners intend to do business together. It allows you to clarify who will be responsible for different tasks and how major decisions will be taken.
It will also set out rules in respect of the partnership finances, such as division of profits and losses and agreement for taking out loans. An LLP partnership agreement will be similar but will take into account the limited liability that the partners have.
Why have a partnership agreement?
A partnership gives certainty to those involved and means that there are set processes in place for various events, such as a partner leaving or a major decision that needs to be taken.
It also reduces the likelihood of partnership disputes, as the partners can see what the agreed position is. The inclusion of a dispute resolution process in the agreement means that if a disagreement does arise, there is a clear path to take to try to resolve issues with minimal damage.
A partnership agreement will also set out in writing the financial issues, such as the capital a partner has put in, and how other contributions such as time, expertise and contacts are to be valued.
What should be included in a partnership agreement?
A partnership agreement can cover a wide range of issues, including the following:
- Who is responsible for making decisions and management of various aspects of the business
- How profits will be distributed
- Liability for any losses, particularly where these are attributable to one partner
- Percentage of ownership
- Duration of the partnership and how a partner can leave or the partnership be dissolved
- What will happen if a partner leaves or dies
- How a new partner can join
- How disputes will be resolved
Shareholders’ agreements FAQs
What is a shareholders’ agreement?
A shareholder agreement allows a company to tailor the rights that accompany shareholdings. Without a bespoke agreement, standard articles would usually apply, which can leave shareholders in difficulty.
By putting an agreement in place that has been specifically drafted to suit the company in question, shareholders can be better protected and have a greater understanding of their powers and responsibilities.
Why have a shareholders’ agreement?
A shareholders’ agreement gives shareholders rights that can help keep company directors in check and ensure that they act in the best interests of the company. It can also protect a company from a shareholder leaving and using information and connections they have gained from their association with your company.
The agreement can set out different classes of shareholders, with different voting rights. This allows some shareholders to have a larger balance of power than others.
What to include in a shareholders’ agreement?
Shareholders’ agreements can include clauses covering the following issues:
- Voting rights
- A policy relating to the issuing of dividends
- Restrictive covenants governing shareholders’ behaviour if they leave the company
- A confidentiality clause
- Prevention of shareholders having an interest in a rival business
- Details of how shares are to be valued
- Rights to buy back the shares of someone leaving the company’s employment
- Details of how shares for sale will be allocated amongst other shareholders, so as not to upset the balance of voting rights
- Drag along and tag along provisions, requiring shareholders to join in with the sale of the company or enabling them to join in with a major share sale
- A shareholder disputes resolution process