Three legal documents every business owner should have

Three documents deal with situations that most owner-managed businesses face at some point: a co-owner leaving or dying, a customer refusing to pay or bringing a claim, and the owner dying or losing the ability to make decisions. Each document is quicker and cheaper to prepare while the business is running normally than after the situation has arisen. For each one, this article sets out what it does, what a good version contains and how to check yours.

1. A shareholder agreement

If you own a company with anyone else, a shareholder agreement is the document to put in place first. It is a private contract between the owners that deals with events the company's articles of association usually do not cover. Every company has articles, and a company that has not registered its own is governed by the model articles. The model articles do not give shareholders a right to buy the shares of an owner who wants to sell or leave, and they say nothing about valuing those shares or resolving a deadlock between owners. A company's own articles are filed at Companies House, where anyone can read them, whereas a shareholder agreement is normally private.

What a good one contains. Look for these provisions by name:

• Pre-emption on transfer. An owner who wants to sell must first offer the shares to the existing owners, so that shares cannot be sold to someone the others have not approved.
• Leaver provisions. The price a departing owner receives for their shares depends on why they leave. An owner who leaves through ill health or retirement is usually treated differently from one who is dismissed for misconduct.
• Drag-along and tag-along rights. Drag-along allows the holders of a set majority to require the minority to sell on the same terms when a buyer wants the whole company. Tag-along allows the minority to join a sale of the majority's shares on the same terms.
• Reserved matters. Decisions, such as borrowing above a set amount, issuing new shares or selling the business, that need the consent of all the owners or of a specified majority.
• Death and incapacity. What happens to an owner's shares if they die or lose capacity, often supported by a cross-option agreement and life insurance so that the family receives the value and the remaining owners keep the shares.
• Deadlock. A procedure for resolving a disagreement between owners with equal votes, such as referral to a mediator or a mechanism for one owner to buy the other out.

Without these provisions, the terms of an owner's exit have to be negotiated when relations are at their most strained, and if negotiation fails, the owners may be left with court proceedings.

2. Terms of business

Your terms of business decide when you are paid, what you are liable for, who owns the work you produce and how a contract can be ended. Terms copied from another business, or not reviewed since your business changed, may not reflect how you trade, and may contain a limitation of liability that a court would not enforce.

What good terms contain.

• Payment terms. When invoices are due and the interest you can charge on late payment. In contracts between businesses that do not provide for interest, the Late Payment of Commercial Debts (Interest) Act 1998 gives a right to statutory interest and a fixed sum towards recovery costs.
• A limitation of liability. A cap drafted for your business and your insurance. A business cannot exclude liability for death or personal injury caused by negligence, and in contracts between businesses, limits on liability for negligence and exclusions in one party's written standard terms must be reasonable to be enforceable.
• Intellectual property. Who owns what you create for a customer, and whether the customer receives ownership or a licence to use it.
• Termination. How either party can end the contract, and what happens to work in progress and money owed when it ends.
• Dispute resolution. How a disagreement is raised and escalated before either party goes to court.

Terms written for the way you trade also reduce the number of disputes, because the answers to the most common questions, such as when payment is due or who owns a design, are agreed before either side has a reason to argue about them.

3. A will and a lasting power of attorney

For a business owner, a will and a lasting power of attorney deal with the business as well as personal matters.

Your will decides who receives your shares when you die, and it needs to be consistent with your shareholder agreement. If your will leaves your shares to your spouse and the shareholder agreement requires them to be offered to your co-owners, your family may receive the value of the shares rather than the shares themselves, and the difference between the two documents can cause disagreement at a difficult time. Marriage or civil partnership revokes an earlier will unless the will shows it was made in expectation of that marriage and was meant to continue, so a will made before you married may no longer be valid.

Business Relief can reduce the inheritance tax on qualifying business assets. Since 6 April 2026, the 100% rate applies to the first £2.5 million of qualifying business and agricultural property, with 50% relief above that. The way your will deals with business assets can affect how the relief applies, so the will and the tax position should be considered together, with your accountant or financial adviser.

A lasting power of attorney covers a different risk: being alive but unable to make decisions after an accident or illness. Without one, your family may need to apply to the Court of Protection to be appointed as your deputy before they can manage your finances, which involves a court application, fees and ongoing supervision. A lasting power of attorney must be registered with the Office of the Public Guardian before it can be used, and registration takes several weeks.

An LPA deals with your own property and finances, which include your shares, but the company's articles decide who can act as a director. Under the model articles, a director stops being a director if a doctor treating them gives the company a written opinion that they are incapable of acting as a director and may remain so for more than three months. If you are the only director, check how a new director would be appointed in that situation, and consider appointing a second director.

A short check of your own documents

These questions take a few minutes to answer:

• If you own your company with anyone else, is there a signed shareholder agreement, and does it deal with transfers, leavers and deadlock?
• When were your terms of business last reviewed, and were they written for your business?
• Do your terms give you a right to interest on late payment, and does the limit on your liability match your insurance?
• Have you made or reviewed your will since you started the business, married or had children, and does it match your shareholder agreement?
• Do you have a registered lasting power of attorney for property and financial affairs?
• Does the company own its brand, website, software and other key assets, including anything created by a founder before the company was formed or by a freelancer? Copyright in work created by a freelancer stays with the freelancer unless it is assigned in writing.

If the answer to any of these is no, or you are not sure, that document is worth reviewing.

When to deal with them

All three documents are easier to agree while the business is running smoothly. Owners on good terms can discuss leaver provisions calmly, terms of business can be updated before a dispute arises, and a will and an LPA can be made while you are well. Once a co-owner has decided to leave, a customer has refused to pay or an owner has become ill, the same documents are harder to negotiate, and an LPA can no longer be made by someone who has lost capacity.

If your check found gaps, send us a short summary and we will arrange a call with one of our solicitors to discuss what you need and what it will cost.

This article is one solicitor's view and general information, not legal advice — always take advice on your own situation before acting. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).