START-UP SHAREHOLDER AGREEMENTS
In start-ups, there is typically a large amount of optimism and excitement around the creation of a new venture and little thought is given to what will happen if things do not go according to plan. In particular the procedures that are to be followed in the event of disputes arising and the rights of shareholder leavers upon termination of employment are things that are typically overlooked.
It is therefore common for start-ups to simply adopt the Model Articles of association and to fail to have in place an appropriate shareholders agreement.
The Model Articles often create a false sense of security and it’s important to appreciate they have significant limitations. For example, they contain no restrictive covenants, and they provide limited restrictions on the transfer of shares, which as a business owner is something you might be anxious to avoid.
Consequently, with only model articles in place, and in the absence of a proper shareholders agreement to govern the relationship between shareholders, dealing with any shares held by the individual employee can often be a complex, costly and time consuming process.
We firmly believe that it’s best to adopt the old adage “Hope for the best but prepare for the worst” which necessitates having a proper framework in place for avoiding shareholder disputes.
This requires investment in bespoke corporate documents that specifically cater for situations when shareholders leave and provide appropriate mechanisms to govern disputes between shareholders.
This documentation does not have to be overly complicated but it should provide clarity between the parties. It should also integrate with the overall commercial strategy of the company and other documents that govern the relationships between the parties.
At Aquitas we don’t supply templates but rather genuinely bespoke agreements that meet the commercial needs of the business. These can save a huge amount of time and expense further on down the line and is something that all businesses should invest in.
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