When running a business with others, Shareholders’ and Partnership Agreements are very advantageous. A Partnership Agreement is beneficial if you are all trading as individuals, whilst a Shareholders’ Agreement is beneficial when trading through a limited company.
These agreements outline how decisions are made and provide solutions for potential disagreements, ensuring smoother collaborations and preventing future issues.
Read on as we outline the key differences between a Partnership and a Shareholders’ Agreement.
What is a Partnership Agreement?
A Partnership Agreement is a document for individuals who are running a business together. It’s essentially a set of rules that helps everyone understand who is responsible for what, how profits will be shared, what happens if someone wants to leave, and how to sort out disagreements. It’s all about making sure everyone is on the same page, so the business runs smoothly.
What is a Shareholders’ Agreement?
A Shareholders’ Agreement is for businesses that have shareholders. Shareholders are not required to be involved with the operations of the business itself like with partnerships; however, they hold certain rights and benefit from the business’s profits.
This type of agreement focuses on the rights and protections of the shareholders, detailing how decisions affecting the company are made, how profits (including dividends) are distributed, and the procedures for a shareholder selling or transferring their shares.
Features included in Partnership Agreements
- Commencement and duration of partnership
- Business name and location
- Purpose or nature of the business activities
- Ownership of the business property
- Details of accounts system and banking arrangements
- Financial details of business: partner contributions, withdrawals, capital, current accounts and so on
- Obligations and duties of the partners
- Maternity leave
- Retirement and expulsion
- Limitations on partners’ authority
- Transfer of interest
Features included in Shareholder Agreements’
- Shareholder obligations
- Appointment of directors
- Shareholder dispute resolution
- Share transfer restrictions
- Drag-along and tag-along rights
- Restrictive covenants
- Exit arrangements such as retirement or selling or buying each other’s interest etc.
- Reserved matters requiring unanimous agreement of shareholders
- Mechanism of resolving deadlocks
Here at Rubric, we specialise in drafting effective Partnership and Shareholders’ Agreements, tailored to meet the unique needs of each individual business.
We are here to guarantee that your business has all the necessary agreements in place, allowing it to flourish and expand, for a secure and prosperous future.
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