Shareholders’ Agreements vs Partnership Agreements - Which do you need?

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Shareholders’ Agreements vs Partnership Agreements - Which do you need?

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Starting a business with someone else is exciting. But it’s easy to forget about the paperwork that protects everyone. Whether you’re starting a company or a joint venture, one of the first legal question you’ll face is simple:

Do we need a Shareholders’ Agreement or a Partnership Agreement?

Even though these documents have similar goals – setting out how business will run - they apply to very different business structures. Choosing the wrong one (or having nothing in place at all) can cause serious problems down the line.

What’s the difference?

It will all depend on what kind of structure you’ve chosen for your business:

• If the setup is a limited company, you’ll need a Shareholders’ Agreement.

• If you’ve chosen partnership (without forming a company) you’ll need a Partnership Agreement.

This structures aren’t just different on the paper – they bring different type of responsibilities – who’s overseeing if something goes wrong, how taxes work and how decisions are made. That’s why it’s so important to have the right agreement from the start.

What do these agreements cover?

Both types of agreements aim to make sure everyone involved knows where they stand. They typically cover:

• Ownership and profit share

• Roles and responsibilities

• Decision-making powers

• Exit strategies (e.g. if someone wants to leave or sell)

• Dispute resolution mechanisms

• Restrictions on competing with the business after leaving

Without a written legal agreement, you’re relying on default legal rules – and those often don’t match what business partners expect or want.

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Why Are They So Important?

Even the best business partnership can run into disagreements. Having a written agreement in place reduces the risk of disputes, protects everyone involved and makes your business more stable – more attractive to investors or lenders.

We often see issues when people don’t have an agreement, including:

• How profits should be divided or re-invested?

• One person wanting to sell or exit while the other disagrees.

• A founder leaving and taking key clients or business information with them.

• Confusion over who gets to make certain decisions.

A well-drafted agreement gives certainty, protects everyone involved, and ensures the business can continue to operate even if relationships change.

Quick guide: Which one do I need?

Business Type Agreement Needed

Limited company -> Shareholders’ Agreement

Traditional partnership -> Partnership Agreement

Still deciding on your business structure?

If you haven’t chosen a business structure yet, this is the perfect time to get legal advice. Your decision will affect:

• How much personal liability you take on?

• How your business gets taxed?

• Funding options.

• How easy it is to sell or exit?

Final thought

Setting up a business with others can be one of the most rewarding decisions you ever make – as long as you’ve got the right legal foundations in place.

Whether you need a Shareholders’ Agreement or a Partnership Agreement, it’s worth investing in a properly written agreement that reflects your business goals, protects your interests, and reduces future risk.