As an owner of a recruitment agency, you not only have the title of being the Director of the business, but you also own shares in the business, allowing you to take a portion of the profits as dividends and benefit financially should the company be sold. If there is only one director and shareholder within the business, then the decisions and ownership lie solely with one person. However, when there are multiple parties owning shares within the same business, there needs to be an agreed structure in place on what entitlements these shares give – this is called a shareholders agreement.
WHAT IS A SHAREHOLDERS AGREEMENT?
A shareholders’ agreement is a legally binding contract between a company’s shareholders that outlines their rights, responsibilities, and roles. It’s similar to a partnership agreement and can help protect shareholders’ investments, establish fair relationships, and govern how the company is run
VERBAL AGREEMENTS
There may be a verbal agreement between shareholders in the early stages of a recruitment business on what these shares represent but as the value of the business grows it is advisable to document these within a shareholder’s agreement so there can be no misunderstanding in the future.
WHAT’S COVERED IN A SHAREHOLDERS AGREEMENT?
A shareholder’s agreement will normally be between all parties involved and cover some/all of the points below: –
- Dividend Distribution – an agreement on when and how much dividends will be distributed
- Decision Making – an agreement on who has deciding votes on important business decisions
- Good Leaver – an agreement on what happens to the shares in the event of a shareholder deciding to leave the business on good terms
- Bad Leaver – an agreement on what happens to the shares in the event of a shareholder leaving the business on bad terms i.e. gross misconduct
- Sale of Shares – an agreement on who the shares can be sold to both within and outside of the business
- Death/illness/incapacity to work – an agreement on what happens should a shareholder die, become seriously ill or be incapable of being able to perform their work duties
All these points are there to protect the business and the shareholders in these eventualities and give guidance on what is expected in each scenario.
WHAT HAPPENS IF THERE’S NOTHING IN PLACE?
“Should I have a shareholders agreement for my recruitment agency? Do I even need it?”
If a business does not have a shareholder’s agreement in place and one or more of these eventualities occur, then this could lead to a dispute and mediation required to resolve the situation which may have a detrimental impact on the company and/or the other shareholders. Our friends at recLAW can handle such disputes, ask for Barry, he’s the best in the biz!
This agreement should be reviewed periodically and, if necessary, a replacement shareholder’s agreement is created should the company and/or shareholders’ circumstances change.
SHOULD I HAVE A SHAREHOLDERS AGREEMENT FOR MY RECRUITMENT AGENCY?
For me, if there is more than one person in your business who owns shares – absolutely!
MAYACHI Ltd works with many recruitment agencies that have multiple directors and shareholders. As part of our all-in-one service, we advise them on what should be included and considered within these agreements as part of the advice given. If you’re reading this and you’ve not got a shareholders agreement in place then we need to jump on a call ASAP. We can discuss this and all other aspects of your financials in your complimentary consultation. Spaces are limited, so grab yourself one!
Don’t wait for things to happen, protect yourself and your shares now.
