I am considering bringing in a new partner into my live event production firm. He brings no investment other than his excellent contacts. Is it imperative that we have a shareholders agreement or will it suffice to simply issue him the 30% shares, as registered at companies house, and divi up the profits based on that shareholding?
The simple answer to your question is yes, you should have a shareholders’ agreement in order to protect you, the company and its business. Many of the issues covered in the agreement will commonly arise between shareholders.
The agreement will specify procedures regulating ownership of the shares, such as what would happen if one of you wanted to sell your shares, breached the agreement, became bankrupt, incapacitated or died. Dealing with these issues is important for different reasons depending on the event that occurs.
The agreement might confirm decisions that would require the consent of both of you before they can be taken. You can agree a limit of each of your authority to take major decisions, such as increasing borrowing, buying new equipment or hiring employees. This is particularly important if the new business partner is going to be a director of the company. As a 30% shareholder, you would need to bear in mind that the consent of your new business partner would be required to take major decisions at shareholder level.
The agreement may also seek to impose appropriate and reasonable restrictions on your new business partner concerning the company’s confidential information and goodwill to restrict his or her activities in order to protect the company’s business.
It is advisable to consider and have an agreement in place governing these types of issues at the outset to lessen the risk of a costly and damaging dispute arising in the future.