WHEN people come together to pursue a new business venture, there is often real enthusiasm at the prospect of what might be achieved.

Many start-ups, along with established informal and formal partnerships, decide to incorporate as a limited company.

The prospect of setting up a new company and running a business can be exciting but also rather daunting and, with so much happening at once, essential matters are sometimes overlooked.

Where more than one person is to hold shares in a company, even one founded on a long-standing friendship or business arrangement, the value of a properly- drafted shareholders’ agreement cannot be overstated.

Shareholders’ agreements regulate the dealings between shareholders and put in place a framework through which the ongoing relationship between them can be managed.

They can be used to clearly define and set boundaries on how a company is to be run, setting out which matters need unanimous consent, what procedure is to be followed where there is a disagreement and what happens when someone wants to sell their shares.

Without this formal written agreement in place, the path to resolving these issues can be difficult to navigate.

With many companies now finding the economic circumstances tough, the potential for disagreements between shareholders is a growing threat to success.

Over the coming months, many difficult decisions will need to be taken in order to stay competitive and this can put an additional strain on even the strongest of relationships.

By having a properly drafted shareholders’ agreement, some of the potential pitfalls can be avoided. In the long run, this can avoid often acrimonious and protracted disputes and can save on solicitor’s costs.

Ultimately, this can mean the difference between a company being able to continue in business or having to be broken up as people go their individual ways.

If you are starting out with a new business venture, or even if you hold shares in a long-established company, it is never too early to put a shareholders’ agreement in place.

Experience shows, however, that by the time many people realise the need, it is often too late.

■ James Wharton is a solicitor in the company law team at BHP Law in Darlington.

He can be contacted on 01325-466794.