When starting a business with another party, one element that is often overlooked and that people rarely want to think about is “what happens if relations break down?”
At the outset it is strongly advisable to put a shareholders agreement of partnership agreement in place which clearly sets out not only the rights and obligations of each party but also addresses the mechanisms to resolve disputes should they arise.
One of the key benefits of a shareholders agreement in particular is that the affairs of a company can be regulated privately without the public observation that can attach to articles of association.
The most common uses of a shareholders agreement are as follows:
Setting out the rights of shareholders;
Managing how transfer of shares is to be dealt with;
Preventing shareholders from blocking business sales;
Controlling dilution of shares;
Controlling the mechanisms for resolving disputes among shareholders; and
Giving minority shareholders enhanced protection.
For businesses that are unincorporated or for LLPs, putting a good partnership agreement in place at the very inception of the business can provide many of the same benefits as a shareholders agreement. For those that don’t want to be tied to the provisions contained within the Partnership Act, it is vital that an encompassing agreement is drawn up and put in place.
With this being said, disputes can still arise and it may be necessary to either formally litigate or adopt an alternative dispute resolution such as mediation.