When starting a business, partners may feel excited and optimistic regarding the future of the company and may believe that they will always get along with one another. This is not always true.
There are a number of factors which can affect the day to day running of a business, such as change in legislation or personal vision for the company. These issues are likely to create a difference in opinion in minor matters or major transactions and lead to stressful situations. Therefore, it is wise to consider the possibility of obtaining a partnership agreement which protects everyone’s interest along the way.
What is a partnership agreement?
A partnership agreement is a formal contract that outlines each partners’ responsibility and aims to divide these equally between all parties. Depending on what type of company you have, a partnership agreement may take on a slightly different name. There are three types of agreements, including:
- Operating Agreement for limited companies;
- Shareholder Agreement for corporations;
- Partnership Agreement for general partnerships
Why create a partnership agreement?
There are major benefits to having a partnership agreement, some of these are discussed below:
This form of agreement helps to establish rules for each partner and dictates how a partnership is run. A major benefit to having such an agreement in place is that it removes any doubt as to the partners’ position and role within a company, thus, leading to fewer disagreements.
If a partnership agreement does not cover a particular situation, there may be disagreements concerning its operation which could result in solicitors being involved. If the dispute is not resolved, it will cost the business time and money to reach a fair decision, especially if courts are involved. Planning in advance and setting out clear terms will help to remove the stress and reduce the chances of a dispute getting out of control.
The Partnership Act 1890
This piece of legislation will be used to govern a partnership in cases where there is no partnership agreement. This will put the company and its partners at a major disadvantage, as the law is quite archaic and will presume all partners have an equal stake in the business. This will not factor in a non-performing or disruptive partner and will contribute to further disputes moving forward.
If you do not have a partnership agreement, the law as mentioned previously, will assume all partners have an equal share. Therefore, this will not take into account how much each partner has contributed to the company in terms of capital and is likely to result in an unfair financial settlement for those who may not have invested as much or carried out the same level of responsibility.
As seen in the examples above, the main purpose of a partnership agreement is to ensure that all partners have a clear vision of their roles and responsibilities. It acts as a safeguard to protect their financial interests as well as dictate how partners can be removed. The main goal here is to ensure fair practices and reduce costs to the company due to disagreements and/or failure to perform.
This article is for information purposes only and does not constitute legal advice. Please get in touch with us by calling 01244 478730 or email firstname.lastname@example.org and one of our experts will be able to advise.
Many shareholders of a company enter into a shareholders’ agreement with each other as to how they will behave in respect of their company. However, the agreement is widely disregarded by many businesses as it is not a legal requirement. Some shareholders believe that nothing will go wrong in the future. Many shareholders consider an agreement unnecessary, as they could rely on their close friendship with other shareholders, to solve problems. Some shareholders also feel that if the provisions in an agreement, could also be included in the company’s articles of association, then why the need for a shareholders’ agreement? This article will explore what a shareholders’ agreement is and whether or not it is needed.
What is a Shareholders’ Agreement?
A shareholders’ agreement is a private contract between the shareholders of a company that creates legally binding obligations between shareholders. The agreement provides clarity on important matters that affect shareholders, such as their duties, and how disputes are to be resolved, for example. A shareholder does not have to enter into an agreement. If a shareholder enters into an agreement he must do so without compulsion. Agreements are not regulated by the Companies Act 2006, so there is no legal process under the CA 2006, to alter the agreement. Therefore, most shareholders’ agreements will normally state that all shareholders, who are a party to the contract, must give consent to amend it.
Do I Need a Shareholders’ Agreement?
Friendships with other shareholders could deteriorate without a well drafted agreement, resulting in expensive litigation. A minority shareholder can have more control in the running of a business, under an agreement, as all parties to the contract, must agree to an amendment. A shareholders’ agreement can include a shareholder’s personal rights which are contractually enforceable, for example, the right for a specified person to be appointed as a director. By contrast, if this right was included in the company’s articles, it would not be contractually enforceable under section 33 CA 2006. An agreement also allows for commercially sensitive information to be included, as it is a private document. The impact of Covid-19 has necessitated the need for a shareholders’ agreement. The pandemic has initiated changing circumstances for business owners, such as cash flow problems, a desperate need for investment, shareholders becoming incapacitated due to Covid-19. A shareholders’ agreement is essential as it can be tailored to suit the needs of the business and cover a myriad of situations.
A shareholders’ agreement is a crucial document that legally binds all parties and can avoid potential conflict between shareholders, especially as the company’s articles of association, do not provide adequate protection. Obtaining a bespoke shareholders’ agreement from MLS will ensure the effortless running of the business and provide it with the best chance to flourish financially. It is imperative that every company has a shareholders’ agreement, or an updated agreement, that grows in harmony with the business, and takes the impact of Covid-19 into account.
This article is for informational purposes only and does not constitute legal advice. Contact us today on 02144 478 730 to book your free, no obligation, consultation.
Author: Niresh NaidooRead More
What is an Executor?
In short, Executors are people authorised by a Will to deal with a deceased’s estate. They are also responsible for ensuring that the instructions set out in the Will are carried out.
This formal authority is obtained by “proving” the Will at the Probate Registry, which issues a grant of probate as evidence to everyone that the named Executors have the authority to administer the estate.
When the grant of probate is issued, the deceased’s Will becomes a public document.
What are the main duties of the Executors?
The duties of the Executors are mostly to collect the estate, pay all debts outstanding at the date of death (including those arising during the administration of the estate) and to distribute the residue of the estate.
An Executor should be a trusted and reasonable individual who is over the age of eighteen.
If there is no one that the person making the Will could or would like to appoint as an Executor, then there is always an option to appoint a solicitor instead. Solicitors will charge for this service but this would come out of the estate and is often seen as ‘money well spent.’
An increasingly popular, and often more affordable option, is to name family members or friends as Executors and to appoint a solicitor to assist the Executors throughout the process. This could be clarified in a Will and significantly lessen the burden of becoming an Executor while still holding onto the control over the estate.
What would be some of the other roles of an Executor?
- Checking to see if there are any instructions regarding the funeral – this includes checking if there is a pre-paid plan or insurance to help pay for it as well as any specific requests about the funeral itself.
- Notify all of the relevant people such as insurance companies and banks of the date of death.
- Settling the deceased persons finances and paying any bills that are owed.
- Valuing the estate.
- After a valuation has been undertaken on the deceased’s estate, the executor will have to deal with paying Inheritance Tax (if applicable).
- Keep an account on what has needed to be spent and how everything has been administered to show that the Executors have administered the estate properly.
The above roles are only a handful of what Executors have to do, but it shows the level of responsibility Executors have and their role is not often an easy or straightforward task.
Can Executors also be beneficiaries?
Executors do not have to be beneficiaries of the Will, but they can be. Most clients like to leave a gift in their Wills in order to show their gratitude and appreciation to the Executors for the work they had to carry out.
Here at My Local Solicitor, we are more than happy to discuss your particular circumstances and help you choose your perfect Executors and/or assist them with their role when required.Read More