The recent case of Woodland Champions Club, where an unmarried couple who were in business together running boutique campsites ended their relationship, highlighted the need for all business owners to ensure that they have a shareholders agreement or partnership agreement, in place to deal with issues arising when business owners exit the business amongst other things.
In the case of WCC, Sandy Jones was required to hand over information in relation to WCC’s online accounts. Prevention is always better than the cure, so the simplest advice in relation to any business is always to ensure that any confidential information such as access to bank accounts, online accounts are available to be accessed by more than one person. This is the same advice you would give business owners if a director passed away, the business would still need to continue and the information to access bank accounts, online accounts etc would need to be available.
The same position applies in relation to family businesses – important information required to run a business must always be available to all the directors. There have been many issues over the years where applications are made to court by shareholders of a company or a beneficiary under a will. The unfortunate situation here is where the company only had one director and when that person has passed away, the business cannot continue without the court appointing another director. Once the new director is appointed they then have the task of having to find the relevant business information to run the business with varying degrees of success.
Shareholders agreements or partnership agreements can also specify information required to be available to the shareholders of SME’s and partners in a partnership, whilst the shareholders are in business together and on a shareholder exiting the business. Any such agreements should be specific for the business and not generic, so it is clear what the party’s precise obligations are. So, in the case of WCC, had there been an agreement in place for any exiting owner having to disclose all confidential information and specifically the online account information, this may have expedited the legal proceedings, or the legal proceedings may not have even been required.
If a party does not want to comply with their contractual obligations at the end of the business relationship, the only option is to enforce the agreement by way of the Courts but at least the obligations are clear as within the contract and if a party is acting unreasonably there may be consequences for doing so.
Shareholder’s agreement or partnership agreements should be updated from time to time during the life cycle of the business, so that it is kept up to date. As a shareholder’s agreement dealing with a start up business will look very different from a more mature business, due to the size of the business and different obligations on the shareholders/directors.
Having said the above, when family relationships are mixed with business relationships things become even more complicated and it can be difficult for those involved to see the business clearly in view of the personal family relationships.
However, a well drafted and updated shareholders agreement or partnership agreement can at least put some boundaries in place to help avoid costly and time consuming – and in some cases vindictive – legal proceedings.
