Shareholders’ Agreement: preventing a messy divorce

oing into business is like entering into a marriage – two people who have no doubt that they share the same aims and values as one another, commit to a life full of happiness and success together.  Unfortunately, this is not always the case and all too often we see once happy and successful business partners fall out beyond repair. This can be due to a number of factors but often because they have a differing of opinion on how to take the business forward; the value of an individual’s contribution or one party’s wish to move on to another project.

Most of us do not like to  think about what would happen in the event of a divorce before we have even said the words ‘I do’ (unless we are Hollywood celebrities!) but breakups do happen and the aim of a prenuptial agreement is to take the bitter angst out of the situation.  A Shareholders’ Agreement acts in the same way for business partners and it is vital that every company has one drawn up in the ‘dating’ stages of setting up a company before any disagreements arise.

A Shareholders’ Agreement is a contract between all of the holders of shares in a company containing certain terms relating to the operation (and often establishment) of that company. It regulates the behaviour of shareholders amongst themselves and provides a mechanism for resolving disputes between the shareholders.

If a dispute between the shareholders is allowed to continue, the business may be paralysed and the value of the company eroded away. No legal document can prevent shareholders from falling out but a Shareholders’ Agreement can provide a framework on how to deal with the situation.

Without a Shareholders' Agreement in place, the only course of action is that of debate, and further debate, legal involvement, and yet more legal involvement. What this means is money - and lots of it - to find a resolution. Of course if there is a 50/50 split of shares in the company and no deadlock clause to refer to, then the only resolution maybe to dissolve the company and all of the  hard work you have put into setting up and developing the business may be lost.

There are a number of points that will need to be considered in a Shareholders’ Agreement and it will need to be specifically tailored to your company. However, in general terms, the Agreement must include a process to deal with who may buy the shares and how they will be valued. What will you do if a third party wants to buy the business and one of you won't agree on a sale?

What happens on death of a shareholder? Do the shares pass into the deceased estate; to the other shareholders or perhaps back to the company? Who might you be in business with if the shares were to pass by the deceased’s will?  Have you considered life insurances policies to provide funds for surviving shareholders to buy the deceased’s shares?

Crucially, the process of thinking about how you would deal with a dispute and its implications – and discussing it with the other shareholders – can help you to avoid future problems or at least mitigate their consequences.

Jeremy Paterson studied Economic History at the University of Leicester and then spent several years in marketing working for agencies near London. At the age of 28, he made the decision to change career and embarked on a law conversion course and LPC at the College of Law in Guildford.

In 2007, he completed a training contract in which he gained experience of civil litigation – an area of law where he found great interest and enjoyment from overcoming unknown challenges.
‘I found great satisfaction in resolving disputes’ he recalls. ‘I enjoy problem solving, simplifying complex issues, and keeping an eye on what really matters to the client’

After qualifying, Jeremy went on to specialise in civil litigation working for another firm in the Portsmouth area before working for a firm in Southampton. He joined Verisona Law as a Senior Associate in its Commercial Dispute Resolution team early in 2016.

‘I’d had my eye on Verisona Law for a while as it appealed to me from both a legal and marketing perspective,’ he said. ‘Verisona Law has positioned itself in a unique way for the local area and it has earned a great deal of recognition for the range of specialist legal services it offers.’

Client testimonials

"I appreciate all your work and the positive outcome we managed to get and enjoyed working with you." Anon, June 2020.

"Thank you for all your help in this matter" Anon, April 2020.

“Superb help, advice and support throughout. I was kept informed and updated at every step of my legal journey with Verisona Law. I wholeheartedly recommend their service.” Anon, September 2019

“Jeremy was very efficient and detailed in my case. I would like to thank Verisona for their professionalism, understanding and excellent work to resolve my case; the outcome went over and above expectation.” Anon, August 2019

“I can’t thank you enough for all that you have done for me as you can probably appreciate it has been a very difficult time for me but I can now move on and enjoy my life again so once again Jeremy thank you.” Anon, June 2019

"Jeremy, thanks for all you and Verisona have done for our company. You were a source of calm in a storm. Your advice, guidance and reassurance helped us see off a serious threat to our company and its Intellectual Property." Anon, June 2019

"We will continue to support and recommend our clients to Verisona." Bernard Landi - Landi Accounting, August 2018

"Having recently used Verisona Law to help recover a commercial debt due to us, I would highly recommend them. Jeremy was very professional and helpful, giving information throughout the case, and he was also very calm which really helped us." Anon, June 2018

"I would like to thank you for the first class service we have received from you. Your advice and the professional way you treated us throughout culminated in a result which, prior to your appointment, seemed a long way away." Mr Herridge, June 2018

"Many thanks for your help and constant support." Anon, January 2018

"I was very impressed with your support and advice in this matter." Anon, February 2018

"Verisona have recently acted on behalf of my company regarding a HSE matter. From the outset it became very apparent to me that they were going to leave no stone unturned. I was kept up to date at any time, day or night, and they were always helpful and reassuring. They provided me with a top London barrister who specialised in HSE matters to represent my company in court. I cannot thank them enough for all their hard work in bringing this matter to a close and would highly recommend them to anyone seeking professional legal help." Anon, July 2017

"Thanks again to the Verisona team and in particular Jeremy Paterson. It was reassuring to have an expert in my corner whilst navigating the complicated process of chasing an outstanding debt that was owed to our company." Anon, February 2017

"I was really pleased with the help and support provided by solicitor Jeremy Paterson at Verisona Law. He acted swiftly but concisely with his in-depth knowledge of the law. He covered every possible outcome and kept me updated at every stage of the way without me having to chase him. He went above and beyond anything I have ever experienced before. Really excellent service, achieving a great outcome. I would definitely use Jeremy and Verisona again." Sarah Dineage - Portsmouth Abuse and Rape Counselling Service, November 2016

"Thank you very much for your help in this matter, you have personally done a very professional job for me and I very much appreciate the excellent service I have once again received from Verisona." Anon, October 2016

"Robert and Jeremy provided detailed explanations of legal processes and procedures in an easy to understand style and always made us feel at ease and supported. The dispute was dealt with to our entire satisfaction and we would certainly recommend Verisona Law." Anon, September 2016

  • 2003 Post Graduate Diploma in Law at The College of Law in Guildford
  • 2004 LPC at The College of Law in Guildford
  • 2005 Training contract with Addison Law in Emsworth
  • 2006 Training contract secondment to Churchers in Fareham
  • 2007 Qualified as a solicitor
  • 2008 Specialised in Civil Litigation at Churchers
  • 2013 Civil Litigation at Driver Belcher in Southampton
  • 2016 Commercial Dispute Resolution at Verisona Law
  • Commercial disputes
  • Contractual disputes
  • Property and construction disputes
  • Shareholder and partnership disputes
  • Landlord and tenant disputes
  • Intellectual Property disputes
  • Professional Negligence

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