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If we can bear to go back to the beginning, the reason for the difficulty in knowing how to execute Brexit is because the EU Lisbon Treaty doesn’t explain how members should leave the EU. There is a certain arrogance in assuming that no-one will ever want to leave a club, regardless of its merits, but it turns out that no-one really considered it.
This teaches us a lot about agreements generally, and SME shareholder agreements specifically. Always consider ‘what if’ scenarios and, while you’re all on the same side and on talking terms, how you’ll resolve disputes or how to leave!
1. You may no longer want to work together
When setting up a company with your friend/family member/colleague you’re doing this at a time of mutual agreement and understanding. However, as the course of the business changes, as it will, you may find your objectives have changed. Or you may want to move in a different direction and have more autonomy. How will you leave the business? Will you stay as a shareholder? Or expect to be bought out?
2. One of you may become ill, or worse
This is completely out of anyone’s control, but will have a real impact on the business. What do you want to happen if one of you can no longer carry out your duties or drive the business forward? Will you want your family to be involved or is this the last thing you want them to be bothered with at a difficult time? If your family are involved will old resentments resurface that can’t be resolved unless there are clear steps for them to follow.
3. What if the Board can’t agree on what it wants to do?
If there’s one vote per Director or Shareholder and there’s a deadlock vote, with no majority, what can you do? A Shareholder agreement should spell out the steps, such as the Chairman having a casting vote. It doesn’t really matter what it is, as long as you all sign up to it.
4. What is the price of leaving?
What formula, or who, will decide what is the value of your shares should you leave the company? Will the price be different for different reasons? Will it be paid in instalments or not? How will it be funded?
5. After you’ve left, what will you be allowed to do?
Might you have to wait 6 months before setting up a similar business in competition? Or take away trade from the company? Or lure staff from the company? Are you obliged to immediately resign from the Board? Probably, however, this may affect your future tax treatment on a sale.
At On The Spot Tax Accountants, we work with you throughout the year. We get to know your business inside out and keep your records up-to-date to avoid the end-of-year panic.
If you’d like this approach to the wonderful world of tax and accounting, call for a free initial chat with Paula Tomlinson, our Founder on 07717 854333 or 01444 882677, or see www.onthespottax.co.uk