The true price of business disputes

COMPANY bosses could find they lose out legally and financially if they don’t have the right shareholder agreements in place, an accountancy and business advisory firm has warned.

North-East-based Clive Owen & Co LLP is urging businesses to ensure they have covered themselves in signed shareholder or partnership agreements in case relationships turn sour and parties end up parting.

A typical scenario the firm has seen include shareholders leaving and then refusing to sell the shares back – or only selling at a hugely inflated price.

Another example includes partners who decide they want to work fewer hours – but receive the same profit share causing major rifts.

Nicola Bellerby, a tax partner at Clive Owen’s Durham office, said bosses would often end up switching to paying salaries instead of dividends, a less tax efficient move, simply to avoid declaring dividends to the shareholders they had fallen out with.

She added that it was imperative to have clauses written into agreements to protect businesses – even when families were involved.

“Just like a marriage, it may be all happy and smiley at the beginning but, sadly, relationships can sour and even the best of friends can become bitter and twisted,” she said.

“Paying a salary to avoid giving money to the shareholders you’ve fallen out with is far less tax efficient and can end up costing you in the long run, at the very least by buying shares back at an inflated price.

“By writing something as simple as the shareholder having to sell the shares back to you if they leave, it can cause a lot less financial heartache in the long run.

“It’s a bit like signing a pre-nuptial arrangement before a marriage. Businesses need to ensure they have the right agreements in place to protect themselves.”

The company recently teamed up with Swinburne Maddison Solicitors LLP and Lloyds Bank to hold a workshop to showcase how businesses could protect themselves before signing agreements.

Martyn Tennant, partner with Swinburne Maddison, said:  “We’ve been asked on many occasions to help sort out disputes between business partners when a trauma has occurred.  This can be easily avoided with correct planning and organising.  Legal costs can also be reduced if steps are taken early and business owners choose a preventative course of action rather than reacting to a problem.”

Damian Wynne, senior manager with Lloyds TSB, said: “The banks are very often involved with these matters and it is important that your bank provides you with support services to ensure your business is protected in the event of a situation occurring.”

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