Early in my business life I had to part with a business partner who helped me develop carrotmedia (my day job) in the first 2 years of trading. Unfortunately we had to part ways which fortunately were extremely amicable and we remain friends to this day. However, this process could have been much simpler and easier if some simple legal documents had been in place.
I’m going into business with my two other directors from carrotmedia and Hollie, one of our employees who are fantastic guys and I couldn’t ask for a stronger team. However, we will be drawing up a shareholder agreement to cover the acquisition and disposal of shares in Eliot Turner Ltd. This won’t be a long drawn out document but extremely simple so we all know where we stand.
So why is this a good idea if we’re such a strong team? As we are going to be equal shareholders in the company it’s important that if one of us needs to walk away we can exit without damaging the business. Three of us are equal shareholders of 33% without a member of the board we can pass a special resolution thus meaning the business can’t run. For example, imagine if a member of the board sold his shares to a friend without giving the other directors the opportunity to buy them. A shareholder agreement should prevent this from happening and millions of other permutations.
I would expect to form a limited company and draw up a shareholder agreement for about £500. This doesn’t include making changes to the memorandums and article of association or drawing up your first resolutions. If you don’t understand what I’m on about you must seek good legal advice as I recon about 90% of small business don’t know how to run a limited company correctly.