Greater numbers of Scottish SMEs need to protect themselves against the risks caused by shareholder splits as financial pressures intensify, a lawyer believes.

Nicholas Howie, a newly-appointed Partner in the Corporate law team at Scottish legal firm Lindsays, says family and smaller enterprises in particular would be well advised to ensure they are not at risk by failing to consider such material issues.

And they include the potential that those who control the business no longer agree on its future direction - particularly when it comes to dealing with problems.

With pressures caused by the rising costs of doing business and staffing shortages just two of the challenges showing no signs of easing imminently, Mr Howie has warned that financial issues - and others - can lead to shareholder tensions which some businesses are not best equipped to face.

He said: “One of the most challenging questions which can face family-run businesses and SMEs more generally is, what happens when those who own them fall out?

“Addressing this ‘what if’ can be an awkward one to approach - particularly for those who are in business with relatives or friends and even more so when it’s brought up at a time when things are not going well.

“My experience, however, is that it’s a conversation which a greater number of business owners across Scotland would be well advised having.

“The steps to be taken in the event of a shareholder dispute need to be built into contingency plans and procedures to help protect the future of the business and those who could be affected by any decisions made.”

Glasgow-based Mr Howie has worked with businesses across Scotland for two decades advising on a wide range of corporate and commercial legal issues, including responding to active shareholder disputes - and putting in place the steps that could be followed in the unfortunate eventuality that these occur.

These are generally set out in tailored shareholders’ agreements.

“Shareholder disputes can be complex at the best of times, but when it’s a small or family business they can be even more difficult because they can feel so personal,” Mr Howie added.

“As we set off on new ventures, none of us likes to consider that there may come a time when we fundamentally disagree with some of those closest to us - and no-one wants to dampen the special feeling of being in business alongside family or friends - but there are cases where we need to think about the unthinkable.

“At times when things become financially tighter and there is pressure on profits, for example, human nature is that relationships can become strained. Disagreements over whether to invest for the future or retain reserves, the differing extent to which shareholders are involved in or contribute to the business and who exercises control over decision making and the succession plans of different shareholders can all trigger decisions that people no longer wish to carry on working together.

“In order to protect the business - and the interest of the shareholders - it is important that you know what would happen in that eventuality. A disproportionate number of SMEs unfortunately do not seem to.”

“In many ways, the demands on SMEs have never been greater as many continue to try to recover from the Covid pandemic, respond to the rising costs of living and doing business and, to an increasing extent, engage with and respond to the climate emergency,” Mr Howie said.

“All of that, however, has only served to highlight the need for the entrepreneurial spirit of any business to be supported by solid legal foundations.

“We want our clients to be in a position where they can seize opportunities for growth and success, as well as being best equipped to deal with any challenges.”

Respected Scottish legal advice

Lindsays is a highly regarded legal firm for people and businesses with offices in Glasgow, Edinburgh, Dundee and Perth.

Mr Howie’s appointment further strengthens its well-established Corporate law team.

Formerly a Partner with Anderson Strathern, his legal work is underpinned by a practical corporate background, having worked for the commercial arm of a construction firm and in management roles for an international supermarket retailer before studying law.

He said: “I have been really impressed by the people, ambition and ethos at Lindsays.

“The collegiate nature of the firm has been a strong attraction for me, along with the great opportunities I see to further develop our corporate offer for businesses.”

Lindsays’ corporate lawyers ensure commercial aspirations as well as legal requirements are taken into account.

They advise on all areas of corporate and business law from start-up enterprises to well-established companies operating across a range of sectors, from renewables and high-growth companies to hospitality, healthcare and leisure businesses, with long experience supporting family businesses on the particular issues that face them.

Lindsays Managing Partner Alasdair Cummings said: “We are delighted to welcome Nicholas to the team. To be able to attract a Partner of his calibre is an endorsement not just of the firm’s standing within the legal profession, but of the experience and expertise with which we work to deliver services to our clients.

“As an SME ourselves, we understand the challenges which businesses similar to ours face and we see significant opportunities to grow our corporate offer, particularly within that space. Nicholas’ arrival will help achieve that.”

Nicholas Howie is available to support businesses and people with corporate law issues. You can reach him by emailing NicholasHowie@lindsays.co.uk.

For more information about Lindsays, head to www.lindsays.co.uk.