Starting a business with friends or close associates often seems like a natural and safe choice. There is trust, shared enthusiasm, belief in the idea, and a feeling that "we will work everything out among ourselves." However, according to lawyers, this is where one of the biggest risks lies—the lack of formal agreements. Practice shows that when starting a business without clearly defined rules, friendships often do not withstand the realities of business.
The first serious challenges usually arise not immediately, but when the company begins to grow, when income is generated and it is time to calculate the results for the year. Then, naturally, questions arise: who contributed how much, whose contribution was greater—capital, ideas, connections, or daily work. What seemed self-evident at the beginning turns into disputes over workload, responsibility, and the fair distribution of profits. And when these issues are not discussed in advance, emotions take over.
Eimantas Čepas, a lawyer at the AVOCAD law firm, discusses why a shareholder agreement is necessary even when you are setting up a business with your closest friends and family.
A shareholders' agreement is a private agreement between the shareholders of a company that supplements the company's articles of association but is not publicly registered. Unlike the articles of association, it focuses not on the formal structure of the company but on the actual relationships between the partners and day-to-day decisions.
"A shareholders' agreement allows for more flexible regulation of relations between shareholders – determining how decisions are made, how profits are distributed, and what the conditions are for withdrawal or transfer of shares. It helps to avoid situations where decisions have to be made spontaneously or on the basis of emotions," explains E. Čepas.
Emotions are often the main catalyst for conflict. When there is no clear agreement on who is responsible for what and how each person's contribution is evaluated, even a successful business can become a field of disagreement. From a legal point of view, a shareholders' agreement is a civil contract with all the consequences of a normal contract, so its provisions are binding on all parties to the agreement.
"The shareholders' agreement acts as a safeguard, ensuring that the business partnership is managed transparently and that disputes are resolved according to predefined rules," emphasizes the lawyer.
It is important to understand that such an agreement is not only relevant for large companies. On the contrary, it is often even more important for small and growing businesses. When a business is created by friends, colleagues, or family members, trust often replaces formal agreements, but as the company grows, this becomes a weak link.
"Even in a small company, disagreements about money, decisions, or workload can become a serious source of conflict. A legal document helps to separate personal and business relationships, maintaining a clear line of responsibility," says E. Čepas.
A well-drafted shareholders' agreement covers decision-making procedures, profit distribution principles, conditions for transfer of shares and withdrawal, non-competition and confidentiality obligations, as well as dispute resolution mechanisms. If these issues are not addressed, disputes later become more complex, longer, and more expensive.
It is also important that shareholder agreements have full legal force. Although they are not registered in public registers, courts consider them to be valid and enforceable agreements between shareholders, provided that they do not violate mandatory legal provisions.
"This is one of those cases where good legal form means real content and legal certainty," emphasizes the lawyer.
The most common mistake in practice is not concluding a shareholders' agreement at all or concluding it too late, when the conflict has already begun. Another mistake is to rely on abstract, universal templates that do not reflect real relationships and the specific activities of the company.
"It is often believed that an agreement is unnecessary if the shareholders are friends or family members. In practice, however, it is precisely these relationships that most often turn into the most complex disputes," notes AVOCAD attorney Eimantas Čepas.
A shareholders’ agreement is not a sign of mistrust. It is proof of a mature partnership and an investment in long-term stability. According to the lawyer, it is better to reach a clear agreement today than to settle matters in court tomorrow. “Clear rules help protect not only the business, but also what is often most important—the human relationships that started it all,” notes Eimantas Čepas.