Whether you’re setting up a business partnership or going into business with your partner using a limited liability company, you might want to stop for a moment and ponder the future. Now is the time, when all is well and you and your business partner(s) are making arrangements to launch that great business idea you’ve had, to think about how you all want the company to be managed and what should happen in the event of a dispute. Most new business partners fail to stop and think about this because, lets be frank, no one wants to deal with an unhappy circumstance which hasn’t and may never materialise. The reality however is that it is always best to resolve between you and your partners what roles you will each play, how you will deal with profits and, importantly, losses and the need for more capital should the need arise. In the case of a company, you’ll need to be thinking about a shareholders’ agreement; where you’re in partnership, a partnership agreement will achieve the same goals and both documents are crucially important.
If you are setting up a company with others you will no doubt all own shares in that company and therefore it is advisable that you put in place arrangements in order to avoid future misunderstandings and problems in running the business. This article looks at why you need a shareholders’ agreement and what should be contained in the agreement.
Given that shareholders agreements are private agreements between the shareholders in the company they cover, in basic terms:
a) What each shareholder puts into the business;
b) How the business should be operated;
c) What happens in the event that the shareholders leave
d) Who is to work in the company and on what basis.
e) How to retire in a way that gives the others a chance of buying the retiring shareholders shares
f) Any other provision which is required by the shareholders and complies with Gibraltar law
What if you don’t have a shareholders’ agreement?
In a business partnership all the partners are entitled to a share in management. Conversely in a company - the shareholder who has 51% of the shares essentially runs the business unless it can be proved they are seriously abusing their power.
Where previously good relationships turn sour and the partners take up unreasonable positions in respect of each others’ interests, resolving the differences through the courts can be a very costly exercise, with the cost often exceeding the value of the claim or matter in dispute! Sensible mechanisms for resolving disputes can be included in shareholders’ and partnership agreements which can often save huge amounts of time and legal costs later.
If you are considering formalising a shareholders’ or partnership agreement the best way is to make a note of all the things that you want it to cover then take advice. At ISOLAS all that is needed is one or two meetings with one of our lawyers to discuss what is required for the agreement can then be prepared. It will usually only need minor amendments before it is ready to be signed. If all the partners are comfortable with the agreement being drafted by one law firm for all the members of the company/partnership, a lot of time and money can be saved as well much of the financial and emotional turmoil of the dissolution of the business, should it ever happen
For advice about your options in relation to partnership/company formation and drafting a relevant agreement please contact Elliott Phillips at Isolas Small Businesses Department or simply email on elliott.phillips@isolas.gi. Isolas has a dedicated team of experienced lawyers who deal with a wide range of legal issues which effect local business. ISOLAS will also be happy to assist in respect of any disputes that may have already arisen and help to resolve them as economically and beneficially as possible.