When equal shareholders disagree, how can a business move forwards?
Does this scenario sound familiar?
You’ve set up a business with a friend or connection, to keep things fair you split things, including the ownership of the business, 50:50.
But what happens if you disagree on major decisions? Particularly if one of you decides you no longer want to be part of the business going forwards? We’ve worked with businesses in exactly this situation. Sometimes one owner wants to retire or take on a new challenge, or falls out of love with the business and wants to do something completely different. Maybe one wants to expand and the other wants to keep things as they are.
If you were to find yourself in the situation where you want to exit the business but your equal shareholder doesn’t want you to, your options are limited.
In any of these scenarios, with 50:50 shareholders it’s very difficult to break the deadlock without an existing agreement about how to do it.
Any form of sale of all or part of the business needs both shareholders to agree to it.
One equal shareholder could walk away – but that could lead to considerable damage to the business and them not getting the financial reward they have worked for in the future.
Shareholder agreements
Shareholder agreements are the best way to prevent these kinds of issues. Ideally shareholder agreements are put in place when a company is first formed, and then reviewed regularly. Agreements tend to cover how the business will be run, how important decisions will be made, and arrangements for the sale of shares. Problems, as detailed above, often arise when friends or family go into business together and don’t like the idea of putting formal arrangements in place. But they are for everyone’s protection, and if you can’t agree on having an agreement in place, that’s probably a sign that you do really need one.
It’s never too late to put an agreement in place, and always preferable to get one signed before a disagreement occurs. Equally, if you have an agreement but haven’t reviewed it for some time, it’s good to check what’s in place and if it still meets your needs.
Support
We have extensive experience of helping companies to put agreements into place, and of working with businesses who don’t have a shareholder agreement and need support to negotiate the exit of one or more owners from a business.
As with all things relating to the sale or partial sale of a business, the sooner you take action, the more help and support we can offer, and you’ll be in the best possible position for a smooth and profitable exit.