Shareholder & Partnership Housekeeping During COVID-19

During these unprecedented times, it is best to stay proactive and forward thinking. Over the last couple of months, we have noticed an influx of companies aiming to do exactly that. There are many ways to help make your company become future-proof; making these steps could prove vital for the future of your company.

The first important question to ask is, “does your company have a shareholders’ agreement?”. If not, and there are things that you would like to have in writing and agreed by the shareholders of your company, then why not use this time to get one drawn up? With business being quiet for most companies, there has never been a better opportunity to make this happen. Shareholders’ agreements can cover anything you want them to and are advantageous, as they do not have to be filed at Companies House. This means that anything agreed between the shareholders can be kept confidential whilst remaining legally binding.

Secondly, “are you wanting to prepare for the future and protect you company?”. If so, then have you considered having a cross option agreement drafted? This would help to ensure the smooth running of your company in the event of the death of a shareholder.

A cross option agreement is drawn up alongside individual life insurance policies, which combine to protect the interests in the shares on the death of the shareholder. For the option holders drafted into the agreement, they will be provided with ‘put and call options’. This means that the seller (the deceased shareholder) will be given a ‘put option’ to sell the shares held for a set price, on death, to the remaining option holders. Then, these remaining option holders will be given the right to buy, for the set price, through a ‘call option’.

Having such a cross option agreement in place can be vital when it comes to succession planning. We recommend that you consider entering into such an agreement in order to protect your interests and the long term success of your company.

Finally, “are you working within a partnership with no formal partnership agreement?”. If this sounds like you, then a formal partnership agreement can be beneficial for many reasons. The key reason being that partnerships governed by statute alone are constantly at risk of ceasing to exist. This is because, by law, if any partner to a partnership dies or becomes bankrupt, the partnership is automatically dissolved. Having a partnership agreement in place can deal with these possible scenarios, as well as others, in order to protect the interests of the partnership.

All three of the above agreements can help put you in a more secure position as a shareholder or partner, as well as providing certainty for the future of your company. If you have any questions or would like help preparing for the future, please get in touch with the corporate and commercial department for more information.