Business owners risking future with poor protection

Lancashire’s business owners are jeopardising future success by failing to put in place appropriate shareholder protection, according to one of the region’s leading corporate lawyers.

Shareholders’ agreements are used to spell out the ownership structure of a business, the decision making process, and what should happen in the event of a dispute.

Andy Herricks, corporate partner at Garricks Solicitors in Blackburn, says the owners of many businesses, particularly family firms, do without a shareholders’ agreement because they believe that close personal relationships between people involved in the business will allow them to overcome any problems.

However, he says the continuing recession has exposed the weaknesses in many business relationships leaving warring factions with a significant legal and financial headache.

Andy said: “People rush into business together with the best of intentions, but often without considering the long term and what might potentially go wrong as the business develops. They avoid putting agreements in writing because they think there is no need to upset the apple cart, or to pay for legal advice.

“However, situations change and even close family relationships and friendships can break down when a business comes under pressure. With no paperwork to fall back on, shareholders can very quickly find themselves in a lengthy and costly legal scrap. We’ve seen a noticeable increase in the number of people coming to see us for advice following the breakdown of a business relationship.”

According to Andy, a great deal of time, money and anguish could be saved by implementing appropriate shareholder protection from the outset and regularly reviewing the documentation as the business grows and personal and family circumstances change. He added: “People should consider the worst case scenarios, for example, what should happen when a shareholder dies, becomes bankrupt or walks out on the business. They should also consider how shares are to be valued and what would happen if a third party offers to buy the business. A little time spent addressing such issues at an early stage will save a lot of heartache down the line if things turn sour.”