A business owner might come to me and say: “I just need a shareholders’ agreement.”

On the face of it, that is a straightforward legal instruction. However, before I begin talking about clauses, decision-making or what happens to someone’s shares if they leave, I ask a more fundamental question:

“What are you actually trying to achieve?”

The answer is not always as obvious as it seems.

Perhaps the owners have built a successful business together but have never properly discussed what each of them wants from it. One might be aiming for rapid growth and an eventual sale. Another may want a stable business that provides a reliable income. Someone else might hope to step back within a few years or eventually pass their interest to a family member.

They may agree on how the business should be run today, but that does not necessarily mean they share the same plans for tomorrow.

That conversation will shape the agreement far more than any standard template could.

Looking beyond the document

Clients understandably tend to approach solicitors when they believe they need a particular document or transaction completed.

It might be a shareholders’ agreement, a commercial contract, a company reorganisation or the purchase or sale of a business.

My role is to deal with that legal requirement, but it is also to look beyond it.

Why is the client making this change? What do they want the business to look like in three or five years? What could prevent them from achieving that? What would happen if circumstances changed or the people involved no longer agreed?

Asking those questions can uncover issues that might otherwise be missed.

A business owner who wants to introduce a new shareholder may be trying to retain an important member of the team. Another may need outside investment to fund growth. Although both clients are considering issuing shares, the risks, expectations and protections required could be very different.

There may also be important questions about how much influence the new shareholder should have, which decisions require their consent and what should happen if they eventually leave the business.

The right answer depends on the commercial objective behind the arrangement.

Having the uncomfortable conversations early

Business owners are often reluctant to discuss what might happen if a relationship breaks down. I understand why. When everybody is enthusiastic about the future, talking about disagreements, departures, illness or death can feel unnecessarily negative.

However, these conversations are much easier to have while relationships are positive.

If expectations are not discussed and documented, people can make very different assumptions about their authority, responsibilities and entitlement to the value of the business. Those differences may only become apparent when an important decision has to be made.

What happens if the owners disagree about the direction of the company? Can one shareholder sell their shares to somebody outside the business? Should the other owners have the opportunity to buy those shares first? What happens if someone stops working for the company but retains their shareholding?

A carefully considered agreement cannot prevent every disagreement, but it can give the owners a clear framework for dealing with one.

It can also help everyone understand where they stand from the outset, rather than leaving important questions unanswered until a relationship is already under pressure.

Understanding the commercial reality

The same approach applies when I advise on commercial contracts.

A client might ask me to review an agreement with a customer, supplier, distributor or business partner. The legal wording matters, but I also need to understand how the relationship will work in practice.

What is each party expected to deliver? Which obligations are most important to the client? Where does the greatest risk sit? What would happen if the other party failed to perform?

The objective is not simply to produce the longest or most restrictive agreement possible. It is to give the business appropriate protection while allowing the commercial relationship to operate successfully.

Sometimes accepting a carefully assessed risk may help secure a valuable opportunity. In other circumstances, one clause could expose the business to a level of liability that is completely disproportionate to the value of the contract.

The client needs to understand that distinction so they can make an informed commercial decision.

Is the proposed route the right one?

Sometimes the most valuable advice I can give is to ask whether the client’s proposed course of action is the best way to achieve their objective.

An owner considering a sale, for example, may be motivated by several different things. They might want to release some of the value they have created, reduce their day-to-day responsibilities, secure investment or resolve questions about succession.

An outright sale may be the right option, but it may not be the only possibility worth exploring. Depending on the circumstances, a management buy-out, reorganisation, staged transaction or alternative investment arrangement could also form part of the conversation.

Understanding the owner’s real objective helps identify which route deserves further consideration.

It may also reveal that other advisers need to be involved. Corporate decisions can have tax, accounting, employment, property and financial implications, so joined-up advice is often essential.

Advice built around the business

Legal advice has to make sense in the real world.

Business owners need clear guidance that reflects the pressures they face, the opportunities in front of them and the future they are trying to create. They need to understand the risks, but they also need an adviser who appreciates that commercial decisions cannot be made in a legal vacuum.

That sometimes means raising an issue the client has not considered. At other times, it means challenging the route they initially planned to take or encouraging them to involve their accountant, tax adviser or another specialist before an important decision is made.

It also means being willing to say when a proposed arrangement may not support the outcome they want.

The client may arrive asking for a document, but the most valuable part of the conversation can happen before anything is drafted.

Because the question is rarely just, “What do you need us to prepare?”

It is: “What are you actually trying to achieve, and will this help you get there?”

If you would like to discuss a commercial agreement, corporate structure, business transaction or another issue affecting your company, please contact me or find out more about the Corporate and Commercial team at stevensdrake.

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