Why written agreements in business are important

Deborah and I, as directors in CDI Alliance, were recently reminded of the importance of written agreements in business. People’s individual requirements and circumstances can change, and interpretations of what has been agreed may vary.

With this in mind, as the new co-directors of the business, we have been reviewing the Articles of Association and ensuring that we have a Shareholders Agreement that meets our needs. This ensures that CDI Alliance can operate efficiently should anything happen to either of us, and enable the business to continue effectively in the future.

Defining key terms

We have looked at defining key terms that we use in our business, how the shares are allocated, and what happens if one of us becomes sick, or dies! Whilst the Shareholders Agreement covers off some scenarios that most people don’t really want to address it can be an important document to have – even if you are in business with a friend or family member. Informal understandings of what will happen under certain circumstances can change when charged with emotion.

The advice is to get an agreement in an understandable word form that is signed by all parties, then if things do change the agreement can always be used as a reference point to conversations and agreements from the past.

formalise your agreement

If you are in an informal business partnership or have an arrangement for lending money to or from the business to or from friends and family, or are shareholders in a limited company, it is important to formalise and record any arrangements that you are working to, so when things change there is always a document to refer to.

While some of the standard loan agreements, articles of association and shareholder agreements may be available free on the internet, they may not be fit for purpose. You may need to take professional advice from an accountant or a solicitor to best reflect your individual position.

Taking a few moments at an early stage getting these things in place can save both time, hassle and money further down the track.