Legal/Finance
with Derek Rodgers, of Gardner Leader
That was certainly the case for two young directors I once advised on a shareholders agreement. They were really only coming to see me because the company secretary (the father of one of the directors) had nagged them to do so.They were not that interested and probably saw it as a bit of a distraction from what they really wanted to do, which was to get on with running their business, doing something they really enjoyed and making money.
Early on the process (very early on as things turned out), we identified that on the advice of their accountants, each of the directors had transferred one of their shares to their respective wives.
I advised them that in case of future problems, such as divorce, they should include some provisions in the agreement to cover that eventuality. The agreement could have included a mechanism requiring the wives to transfer the shares in the event of divorce with suitable provisions for determining the price to be paid.
Both in their twenties at the time and very recently married, they looked at me as if this was the most unlikely scenario they could imagine. They agreed however that we should put something in to cover that very hypothetical situation.
Unfortunately, because sorting out the shareholders agreement was not exactly their top priority, it was almost six years from start to finish before they signed it. By the time they did, one was divorced and one was separated and they both rather sheepishly recalled the advice which I had given them at the outset.
Fortunately, both wives were co-operative and they managed to sort it out, but the delay meant there was nothing in place when the problem arose to ensure that they could achieve a resolution.
The moral of the story is that things can and do go wrong in business relationships as in personal relationships. Once that happens, it is too late to put in place balanced, objective agreements to decide how to resolve the problem. Most likely you are in for a fight, and potentially an expensive one. Just as it is too late to make a will once you are dead, it is too late to make a shareholders agreement once you have a shareholders dispute. The time to think about it is when everyone is on good terms and can think calmly about what they would like to happen if things do go wrong.
For more information on this or any other advice on the law as it affects businesses please contact Derek Rodgers on (01635) 508181 by e-mail to d.rodgers@gardner-leader.co.uk.
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