FAQs about Start-Up/Small Business Advice


What is a shareholders’ agreement?

A shareholder’s agreement is a contract between the shareholders of a company in which they agree how the company will be run.

What does a shareholders’ agreement do?

Shareholder agreements vary and are subject to negotiation, but a typical use is to protect against a majority using their voting power to the detriment of the others.

One of the most important areas is the rules that apply when a shareholder wants to transfer his or her shares, and what can happen to them when the shareholder dies. There are many alternative methods of dealing with such situations including :-

  • pre-emption provisions (giving the other shareholders a first option to buy the shares)
  • free transfers to members of the shareholder’s family
  • for all transfers to require the consent of all shareholders.

What are other item which may be in a shareholders’ agreement  ?

  • How directors are appointed and how the board will take decisions.
  • Dispute resolution procedures.
  • How the business will be financed and profits distributed.
  • Rules on transferring shares, including what happens when a shareholder dies.
  • Rules on employment of family members
  • Rules restricting shareholders from competing with the business.
  • Rules protecting confidential information.
  • Agreements protecting external shareholders

What other legal issues may need to be considered when starting a business ?

  • whether the business requires any licence (for example, to run a nursing home) and if so obtain one.
  • negotiating a lease on business premises.
  • health & safety assessment.
  • If there will be employees, several issues arise, including drawing up a statement of  main terms of employment, or even a full-blown contract of employment
  • registering with the PAYE office
  • employers’ liability insurance.
  • standard terms and conditions of trade.
  • intellectual property, such as a business or brand name that you can protect as a trade mark; a design or invention that you can protect by registering it, or materials that you use (such as plans or blueprints) that are protected by copyright, and confidential information that you need to keep secret from competitors.
  • If you expect your turnover to exceed the registration threshold, or if you wish to, you will need to register for VAT with HM Revenue & Customs.

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