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Understanding director duties key to good governance
As agribusiness has become more sophisticated, it has also become more complex. What were once simple family businesses are often now corporate structures, triggering the need to understand corporate governance and what each individual’s duties and liabilities are.
As a first pointer, for everyone’s sanity, save business for your director and shareholder meetings, not for Sunday dinner. When working together as a family it can be hard to separate work and family time. However, it can be critical for the success of your business to do so. The growth of business has also meant increased ability for business holders to easily set up a company online. Many do this without a second thought as to what their duties will be as a director, or indeed how to be a good director of a company. There are many organisations who provide training as well as online resources that support directors and trustees to fully understand their role and responsibilities. You should also make sure that if your company has more than one shareholder you have an effective shareholders’ agreement in place to govern how your business operates – even if shareholders are family members. When drafting these agreements there are three areas of key significance: • It is critical to agree upon how directors are appointed. Otherwise, this is decided in accordance with the Companies Act, which may not be appropriate for your business. • What actions cannot be carried out without the consent of all shareholders, or a certain threshold of shareholders. We would usually advise that key matters affecting the direction of the business need this higher threshold of consent. • How will each party exit the business? Not everyone will wish to exit at exactly the same time and it is imperative that the agreement has a mechanism to accommodate this; whether a stake can be sold to a third party, the other shareholders buy them out, or if certain assets are sold to facilitate an exit.
Another area that can be great to cover in the shareholders’ agreement is around succession planning. To ensure that everyone is on the same page and that there is agreement on how family succession will work, the younger generation can be granted an option to buy out the parents’ shares over time, on certain circumstances being met.
Time and again we see clients fall short of understanding their duties as a director or the implications of not having a proper shareholders’ agreement in place and it can cause significant stress. We are always happy to discuss these matters and to provide guidance.
Article supplied by Phoebe Davies, a partner at Wynn Williams specialising in corporate and commercial law, with specialist knowledge in the agribusiness sector.
