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North West businesses risking costly shareholder disputes, survey reveals

A survey undertaken Clough & Willis has revealed that 90% of North West SMEs that were questioned understood the risks of not having a shareholders’ agreement in place yet just 48% of companies had one.

Clough & Willis approached 250 firms across the region operating in various sectors including Automotive, IT, Construction, Recruitment, Professional Services, Financial Services, Engineering, Property, Retail, Agriculture and Manufacturing.

It showed that 91% of respondents were aware of the risks but only 48% had adequate and up to date protection. The main reasons for not having an agreement included; simply not getting around to it (5%), having a verbal agreement (5%); all shareholders in the business were family members (16%), don’t think it’s needed (21%) and the two main shareholders were married (31%).

68% of those without a shareholders’ agreement employed up to 10 people; 21% employed between 11 and 50 staff; 5% employed 51 to 100 people whilst 6% had a workforce in excess of 100.

Of the 48% with a shareholders agreement in place, 47% had not reviewed it in the past year despite substantial changes within their organisations. The average number of shareholders within those businesses was four.

Guy Lachlan - commercial solicitor at Clough & Willis – said: “The findings of this survey are both fascinating and shocking at the same time. North West businesses obviously know the real risks that they are opening themselves up to but aren’t acting to mitigate them. There is an assumption that if relationships are good then a shareholders’ agreement is unnecessary. In fact it is precisely because relationships are good that one should be put in place in order to preserve that. The process uncovers unspoken agendas which may not otherwise be shared or which the parties may be reluctant to raise themselves ”

Guy added: That is dangerous choice and can be costly – both in terms of revenue and time – as not having a shareholders’ agreement can throw up all kinds of business critical problems including shareholders not being able to agree on the best way forward as there is no majority to pass a resolution; minority shareholders having little control or say in the running of the company; a board having too much control or issues around not having defined exit strategy – the list is endless.”