It is advisable when entering into business with any other person, whether it be through the medium of a limited company or a partnership, to have an Agreement setting forth the duties and obligations expected of each of the Directors. This document will set forth the expectations which both parties have of each other when entering into an agreement to work together for a common goal, dealing with the business goals and intentions in a general fashion.
This document will also detail, if required, some basic governance, such as the regularity of meetings, the location of meetings, limitations on borrowing powers, directions on specific duties, and other relevant agreements.
If the parties are not intending to form a limited company, the Deed is normally called a Partnership Agreement, and is drafted with a view to the provisions of the Partnership Act, 1890, being the principle piece of legislation which covers the governance of Partnerships in Ireland.
If the parties are intending to form a limited company, it is usual for the document to be embodied in the form of a Shareholder’s Agreement. This Shareholder’s Agreement governs the relationship between shareholders and is in addition to the Memorandum and Articles of Association. The Memorandum and Articles of Association dictate the rules of the company as required by the Companies Act, 1963. The Shareholder’s Agreement has the advantage of not being a public document, unlike the Memorandum and Articles of Association, which are registered in the Companies Registration Office, and are freely available to any spectator. It is convenient to keep certain provisions private to the parties, and the Shareholder’s Agreement fulfils this properly.
The Agreement should be as comprehensive as possible, while also encompassing the business objectives which will be quasi aspirational. Clearly, it is not possible to exactly define how the business will develop, but it is possible to try and set some form of regulation. Important among these are the treatment of Bank Accounts. It is usual to have a restriction on a maximum amount of cheques that can be signed by any one Director. Certain other matters may be canvassed, such as the right to appoint Directors being unanimous, a limitation on borrowing powers, a limitation on the change of any of the Objects or the Memorandum and Articles of Association, unless that decision be unanimous, and soforth.
A further matter which should be considered is the issue of succession. Rarely do people consider when starting a business what would happen if one of the Partners or Directors were to suddenly pass away. Clearly, shares in a company are an asset which would pass under the deceased’s personal Will, and thus a surviving Director could end up actually in partnership with his former Partner’s spouse, a situation which may be fraught with difficulties. In these circumstances, it is advisable to put in provisions in order to deal with this. These may include the right for the surviving Director to buy out the shares of the former Partner. They may also include an option to liquidate the company and disburse the assets, or in the alternative, the business may be put up for sale at best price in order to maximise the financial return to the shareholders.
We will be happy to advise on this, and we look forward to meeting with you.