Why Every Business Needs a Shareholders' Agreement

Running a business is never short of challenges. One day you’re chasing new clients, the next you’re negotiating with suppliers, managing staff, or trying to squeeze in some family time between meetings. For most business owners, the legal paperwork can sit at the bottom of the to-do list – especially when things are going well and trust between shareholders is high. But overlooking one vital document – the shareholders’ agreement – can leave even the most successful business exposed to costly disputes and uncertainty.

In this blog, we explain how this vital document can set out expectations and protect your business from future disputes, provide some real-life examples of where things go wrong and share what key clauses should be in your shareholders’ agreement.

Starting Out Strong – But Missing a Key Piece

Many business ideas and start-ups begin with enthusiasm, vision, and trust between the founders. Friends go into business together. Family members pool resources. Colleagues quit their jobs and launch a new venture.

What’s often missing? A shareholders’ agreement.

It might not sound as exciting as choosing a logo or landing your first client, but this single document can mean the difference between a thriving company and a costly, stressful dispute down the line.

What Is a Shareholders’ Agreement?

In simple terms, a shareholders’ agreement is a legally binding contract between the owners of a company. It sets out how the company should be run, the rights and responsibilities of shareholders, and what happens if disagreements arise.

Think of it as a business “pre-nup”. Nobody goes into a marriage expecting divorce, just as no one starts a business expecting fallout. But when problems arise, the agreement provides clarity, structure, and fairness.

Why Every Business Needs One

1. Prevents Disputes Turning Ugly

Without clear rules, even small disagreements can escalate. Imagine two directors in Didsbury who disagree about reinvesting profits. Without an agreement, one may feel cheated, the other frustrated – and the business suffers.

2. Sets Out Decision-Making Powers

Who decides on hiring staff? Taking out loans? Selling the company? A shareholders’ agreement defines the decision-making process, reducing confusion and resentment.

3. Protects Minority Shareholders

Without proper protection, minority shareholders can be left out in the cold. Agreements ensure their voices are heard and their investments safeguarded.

4. Prepares for the Future

Growth, new investment, or even an exit strategy – these milestones are smoother with the right clauses in place.

“We Don’t Need One – We’re Friends/Family”

This is perhaps the most common trap small businesses fall into. Two brothers set up a property company in Altrincham. Best friends launch a new café in Didsbury. At first, everything runs smoothly. They believe that if a disagreement arose, they’d sort it out over a pint.

But businesses evolve. New senior people join the table. Profits grow. New opportunities come knocking. And with growth comes pressure. Personal relationships can blur the lines between friendship and business. Suddenly, that relaxed “we’ll work it out” attitude isn’t enough.

A shareholders’ agreement helps maintain both the business and the relationship. It sets boundaries, expectations, and processes, so that family dinners don’t turn into boardroom battles.

If this sounds familiar, don’t worry – you can put a shareholders’ agreement in place at any time.

Real-World Relatable Scenarios

The Silent Partner: You agree to go 50/50 with a friend. You work 60 hours a week, they contribute very little, yet they want equal profits. A shareholders’ agreement can set out duties and expectations.

The Sudden Exit: One partner decides to sell their shares to a stranger. Without an agreement, you might end up in business with someone you never chose.

The Growth Phase: Your tech start-up in Manchester secures outside investment. Investors want security. Without a shareholders’ agreement, they may walk away, leaving your growth plans stalled.

These aren’t rare scenarios – they’re common issues that we see every year.

Key Clauses Every Shareholders’ Agreement Should Include

• How decisions are made (major vs day-to-day)

• Share transfers (who can sell, and to whom)

• Exit strategies (what happens if someone leaves)

• Dispute resolution (processes before going to court)

• Dividend policy (how profits are distributed)

Including these clauses gives your business stability and reassures shareholders, investors, and employees.

Why Businesses Can’t Afford to Overlook This

Manchester and Cheshire are home to some of the UK’s fastest-growing SMEs – from tech start-ups to family-owned companies. In such competitive markets, businesses can’t afford the distraction or financial hit of shareholder disputes.

A tailored shareholders’ agreement is not just about preventing problems – it’s about future-proofing your business. It reassures investors, secures relationships, and allows you to focus on growth, not disagreements.

Secure Your Business Future

A shareholders’ agreement gives you the peace of mind that your business – and your relationships – are protected, no matter what the future holds.

At Salehs Solicitors, our experienced and highly regarded Company Commercial team specialises in helping businesses put the right agreements in place.

Get in touch today for an initial discussion and take the first step in securing your business future. Call us on 0161 434 9991 or email enquiries@salehs.co.uk.