"He's my mate - it will be fine... don't worry Nick!" One Silent prayer later 🙏 I give a knowing look and recommend that the best thing they can do is enter into a shareholders agreement to clarify the arrangement between them.
"What's a shareholders agreement?" my client asks and I enthusiastically explain that its an agreement that sets out the key points between business partners in a limited company. It includes many points for example:
how much money each person will commit,
how many shares they will each hold
what the business will do
how the business will be run
who will be the directors
when shareholders agreement needs to be sought
what happens if someone falls ill...
how you can sell out
"Does it take a long time to negotiate?" he asks nervously. Depends. I assure him that a good solicitor will provide an outline of the key commercial points that the business partners need to agree... and will give them an opportunity to negotiate these critical commercial points in their own time. Once key points are agreed - the solicitor can quickly settle these into a final agreement.
"What happens if we're not a limited company?". Many of the same key issues arise if you're doing a joint venture, partnership etc.
"Is it expensive - will it take you a long time to draft it?". A number of the shareholders agreements I've drafted have come in between £750-1000 (+VAT) complete with initial meeting, guidance and drafting. Its great when people go away and negotiate their commercial points because so much comes out during the negotiations! This can - and should - be done without the solicitor being present because you're discussing commercial points! Unfortunately, if the solicitor gets dragged into disagreements and unending amendments.... then inevitably it costs a lot more. Don't be that client.
"What happens if he turns out to be awful to work with?" - Use the shareholders agreement provisions and sell out your shares! Run to the hills... quickly!
After a short period of silence, my client asks "What happens if we fall out during the negotiations?". I smile and say.... "You will have had a lucky escape!".
Contact us at email@example.com if you're thinking about entering into business with someone and want some guidance as to critical points to cover in your shareholders agreement.
*PS. Ladies.... that picture - I know what you were thinking. Yes I know he's cute. Stop it.