2: Shareholders’ agreement: necessity, not luxury

Starting a business with close friends or family members may seem to negate the need for formal arrangements. However, individuals can disagree on a broad range of issues even without the set of challenges startups and businesses bring with them. So how do you protect yourself?

A Shareholders’ Agreement (or a Partnership Agreement in the case of a business organisation set up as a partnership) is a legal contract between all the shareholders. It can flesh out key issues relating to the operation of the business and will formalise your business relationship to prevent any unforeseen issues that will affect the success of your business.

For example, have you considered how the business will continue if one of the founders leaves the company? Would this particular founder retain his shares? If not, does he have a right to offer these shares to the public, or should he offer them to the remaining founders first? How should these shares be valued and paid for?

While having a Shareholders’ Agreement may seem like you’re getting ahead of yourself during the initial startup stage (which may even mean working out of your home), it’s best to get this done before your business grows and things start to become more complicated.