Joint Venture & Shareholder Agreements

Why Are These Agreements Important?

It is important to have a shareholder’s agreement or joint venture agreement for the following reasons:

1. They protect shareholder interests because they:
   • Define ownership percentages and voting rights.
   • Outline how and when dividends are distributed.
   • Set rules for issuing new shares to prevent dilution of the existing shareholders.
2. They prevent disputes by providing a framework for resolving conflicts and they establish decision-making processes for key business matters. They also provide an agreed mechanism whereby one group of shareholders can buy out the others in the event of a dispute that cannot be reconciled.
3. They regulate share transfers through share pre-emption rights that ensure that existing shareholders get the first chance to buy shares before any outsiders. They also can set the conditions for selling shares to third parties which prevents unwanted third-party influence.
4. They provide business continuity and an exit strategy by defining what happens if a shareholder wants to leave, retires, or dies and providing drag-along and tag-along rights to protect majority and minority shareholders in a sale.
5. They protect minority shareholders by preventing the majority shareholders from making decisions that could harm minority interests, and they can require unanimous or special majority approval for key business decisions.
6. They protect the business through confidentiality and non-compete clauses, which can protect sensitive company information and restrict shareholders from starting or joining competing businesses.
7. They provide an ability to customise the business beyond company law. Company law provides a basic protection, but a shareholders’ agreement allows you to set specific rules tailored to your business and shareholders beyond that provided by existing company law, which may not provide you with an answer or may provide you with an answer that you don’t want.

Where Red House Consultancy Comes In

A well-drafted shareholders’ agreement helps avoid conflicts, ensures smooth operations, and protects both majority and minority shareholders. It’s a crucial document for any company with multiple owners. It can contain pretty much whatever you wish, and there is no such thing as a ‘standard’ shareholders’ agreement. Each one must be tailored to the specific wishes of the participants.

I draft shareholders agreements all of the time. In the past I have done joint venture agreements for the upgrade of the London Underground Network and for widening the M25! However, I have also done plenty for smaller projects or for start-up businesses. Generally they take about 10 hours of work to produce a proper agreement that fits your wishes.