You probably need a shareholders’ agreement

Does your company have more than one founder? If so, you need a shareholders’ agreement.

When you incorporated your company, you got a bunch of stuff by default. One of those things was the model articles. These are the publicly available rules of YOUR company. But they were written in 2013, as generically as possible. So they’re unlikely to be suitable for YOU.

There are countless situations where this can be a problem. The solution is to put a shareholders’ agreement in place. Shareholders’ agreements are different to the articles. They are private, and they can be tailored to protect YOUR company.

Here are the top 3 reasons why every new company with more than one owner should get a shareholders’ agreement - whether its with friends and family or you’re looking to become the next unicorn.

Three reasons why you need a shareholders’ agreement

Without one, you won’t know what you’re doing

Putting together a shareholders’ agreement requires you to think about the difficult things up front. For example, you’ll need to consider:

• how major decisions will be made,
• what happens if co-founders don’t live up to their promises, and
• how to deal with major, often unexpected, life events.

You and your fellow shareholders should agree how the uncomfortable stuff should be dealt with now. This way, if things go wrong, you’ll know how to deal with it - and what the repercussions will be.

50/50 owners can’t resolve disputes

If you’ve only got two owners, and you each hold the same number of shares, sooner or later you’re going to have to make an important decisions that you can’t agree on. This is a deadlock.

The model articles will not help you resolve this. There is no way to get around a deadlock if you have not put a shareholders’ agreement in place.

It probably spells the death of your company.

You can’t get rid of dead weight

When you started up, everyone was excited. Your co-founders were motivated and dedicated. You split equity equally and everyone took on the same level of work.

The reality is that this won’t last. At some point, someone will stop pulling their weight. What do you do? The model articles will not help you here. There is no way to get get rid of a shareholder who is not doing the work they promised to do. This will not feel fair, and again could lead to the failure of your entire business.

A shareholders’ agreement can help you deal with this by putting in place one of the most powerful tools - share vesting. Share vesting ensures that if a person does not live up to their promises, they don’t get to keep their shares. Most startups need this.

Do we really need a shareholders’ agreement?

If you are taking your business seriously, and you are working with other people, then yes. You really need one. Good intentions are not enough. Have the difficult conversations now - it will pay off in the long run.

Want to know more? Read our extremely detailed in-depth guide which contains everything you need to know about shareholders’ agreements, written by an experienced UK lawyer in plain and simple English.

How to get a shareholders’ agreement

Using Robolawyer is the simplest, quickest and most cost-effective way to put together a shareholders’ agreement. But it’s not just a template. We cover the entire process - from helping you have those difficult conversations, to drafting every document you need and ensuring that they are legally effective. Then you can get back to growing your business.