Frequently Asked Questions

What is a shareholders agreement?

A shareholders agreement is simply a contract between two or more shareholders documenting how they have agreed to manage the company, their shareholdings and their dealing with each other.

Do I need a shareholders' agreement?

It is not a requirement of UK company law that you have a shareholders' agreement. However, if you have more than one shareholder in your company then it is usually advisable to consider putting one in place. This is because there are many issues that may arise in relation to a company, its directors and shareholder that typically are not adequately dealt with (or not covered at all) under general company law.

What are my options if I want to exit my business?

There is a wide range of different exit routes open to business owners. Each of these carry with them their own particular advantages and disadvantages and not every one will be applicable for every business. However, below are listed some of the most common types:

• Family succession - a sale or transfer of the business/shares to one or more members of the existing owners family
• Management buy out (MBO) - sale to existing management
• Management buy in (MBI) - sale to a new management team which is brought in to the business (usually assisted with private equity funding)
• Trade sale - sale to a completely unconnected third party (this will often to an existing supplier, customer or competitor business)
• Flotation - an initial public offering (IPO) of the company's shares on a public stock exchange (such as the London Stock Exchange or the Alternative Investment Market (AIM)

There are of course numerous variations on the above options and ways in which they can be combined to provide the most appropriate and flexible solution for the parties involved.

Finally, it is worth stating that there is another option available: simply to cease trading and wind up (liquidate) the business and distribute to the owners any remaining value after creditors have been discharged. However, this is unlikely to be the best option in the vast majority of cases as the value of the business realised on a winding up is likely to be substantially less than a sale as a going concern.

When is the right time to start planning my exit?

Now. This really is one of those cases where it never is too early to start. This is true whether you are just starting out, are running an established business or are contemplating your retirement. To keep your options as wide as possible and to ensure that you pay the least amount of tax, many exit plans need to be put in place several years before your planned exit.

This preparation work might include things such as reorganising your corporate structure or altering how property and other assets are held. It could also involve bringing on a balanced and experienced management team to run the business or gifting or transferring some shares between family members. There are numerous other issues that may also need to be addressed.

By engaging in some early and careful planning now you are far more likely to be able to secure your exit on your terms, at a time of your choosing and at the best possible price.