"In the long history of humankind those who learned to collaborate and improvise most effectively have prevailedCharles Darwin"

Do you trust your wife?

If you’re wondering where you’ve heard this before, it’s a line from that great film, The Shawshank Redemption, which as well as being a compelling prison drama, also contains a surprising amount of legal and financial wisdom.

In the scene in question Tim Robbins risks being thrown from a rooftop by an irascible prison guard for daring to enquire about spousal trustworthiness.

But it’s a pretty good question – and to be clear “Do you trust your husband?” is equally as valid. Why? Let’s put it in a business context.

You may well have a business partner who is a spouse, a relation or has even just been a good personal friend for many years. 

Whether that’s an existing business you’ve been running together, or it’s a new investment venture you’re taking together, you may well entirely trust their capability to run the business, but what would happen if you were to fall out at some stage?

Would you go into this business relationship based purely on trust, invest money, time and sweat, without some legal protection in case things don’t work out?  Here is what we would advise:

As much as trust will sustain you through many things, a good working relationship requires the certainty of a sensible fall-back (dare we call it a backstop?) guaranteed route to resolve differences in certain circumstances, such as one shareholder wanting to exit the business or a dispute between shareholders.

This useful document is called a shareholders’ agreement. Amongst its main purposes are:

setting out the rights and obligations of shareholders
providing clarity on the issuing and transferring of shares
describing any powers of veto for key shareholders and protections to be put in place for minority shareholders

It’s important to understand that the details of the shareholder’s agreement may overlap with other documents, such as articles of association, so it’s important to seek legal advice, not just in the creation of the agreement itself but also to ensure that it doesn’t contravene any other document which could land you in a messy situation that is not easy to resolve in the event of dispute.

If you would like to draw up a shareholder’s agreement or check any aspect of any existing one, please do get in touch and we’d be happy to advise you on the best course of action.

This should avoid you ever visiting the likes of Shawshank or requiring redemption!

Article Date: 21/05/2019

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