Many small and medium-sized companies operate without a shareholders' agreement. However, collaboration in the form of a company comes with a wide range of complex issues that can be difficult to grasp without relevant regulation in a shareholders' agreement. A lack of regulation can have unfortunate consequences for the company and its owners. Read on below where we provide useful input on how to protect your business with a clear shareholders' agreement between the owners.

What is an owner agreement?

A shareholders' agreement is an agreement between the owners of the company that primarily regulates the relationship between the owners, the cooperation between the owners and the business purpose of the company.

It serves as the legal framework for ownership and contains rules that supplement legislation and the company's articles of association.

If you need advice or have a question about how to set up an owner agreement, you are always welcome to write to us.

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Why is there a need to enter into an owner agreement?

The vast majority of Danish small and medium-sized owner-managed businesses with multiple owners are organized as partnerships (I/S) or limited liability companies (ApS). Both company forms are suitable for owner-managed businesses, but their basic legal structure requires the owners to have a clear agreement between them that regulates the framework for collaboration.

Read more here about different types of businesses and different types of businesses.

It is characteristic of many Danish companies that all owners actively participate in both management and day-to-day operations, and usually also act as the primary drivers of the company's development.

This places great demands on cooperation within the group of owners, and experience shows that a crucial prerequisite for success - both on a day-to-day basis and in the long term - is that there are clear rules for cooperation. You need a simple, operational and clear set of rules that determine the rights and obligations of the owners, as well as how the business should be run and developed.

Although partnerships and limited liability companies are suitable forms of company, they both have a weakness; the applicable legal rules are often insufficient to regulate the relationship between owners.

Partnerships are largely unregulated and are based on the basic idea of consensus on all decisions, while the rules that apply to limited liability companies (and public limited companies) are based on the basic idea that influence follows capital contributions and that the majority decides. Both models can be unsatisfactory in the classic owner-managed company, where collaboration often requires regulation tailored to the specific circumstances.

For example, the need for regulation varies greatly depending on whether the ownership group consists of two equal partners, one majority owner and one minority owner or a wider group of owners with different ownership stakes, and whether all owners actively participate in the running of the business or only one or a few.

Therefore, in most cases, it is necessary for the owners to enter into a shareholders' agreement that regulates the cooperation in detail in a way that is adapted to the company's individual needs, the composition of the ownership group and the specific expectations the owners have of each other.

In addition to creating peace of mind around the company's operations and development, the process of drafting owner agreements can often provide the owners with valuable long-term benefits and contribute to increased well-being in everyday life. The agreement process forces the owners to have an open dialog about both the company's long-term strategy and the expectations of each other in everyday life. A side benefit is often a stronger and more united group of owners.

When should the owner agreement be signed?

In a conflict situation, it may be too late to agree on the content of the owner agreement. Therefore, the agreement should be drafted while the owners have agreed on their expectations for the collaboration. Entering into an owner agreement should typically be considered in connection with the purchase or establishment of a new business, generational change or other changes in the ownership group, including the admission of new co-owners or the departure of a co-owner.

What should an owner agreement contain?

Among the topics that should typically be addressed in owner agreements for owner-managed businesses are:

What strategy should be pursued in the short, medium and long term?
How are decisions made in management and ownership?
How much should owners work - and on what tasks?
What should the guidelines be for distributing dividends?
What should apply to confidentiality?
Are owners entitled to leave (including maternity leave)?
Do owners receive salary and dividends during illness - and for how long?
What do you do if one of the owners no longer contributes to the collaboration?
How is it handled if an owner wants to leave "early"?
Can you take your "own business" with you when you leave?
Can you compete with the company after leaving?
What is the company worth if one of the owners leaves?
Can each owner sell their ownership share to outsiders?
Who can decide if the company should eventually be sold?
When can you retire and keep your financial rights?
When should you retire?
Is active succession required?
How are conflicts handled in the ownership circle?
How to resolve fundamental and persistent disagreements?

Want us to help you draft an owner agreement?

CLEMENS has extensive experience in providing advice to companies and often assists owner-managed businesses, including in connection with establishment, transfer, conflict resolution and drafting owner agreements.

If you are about to enter into an ownership agreement, don't hesitate to contact our company law experts.

We provide professional advice on how best to tailor an ownership agreement to ensure peace of mind and tailored to your business.

If you have any questions regarding this article or agreements in general, please contact us.