My business partner and I are drifting apart, do we need an agreement?

A shareholders' agreement is one of the most useful documents for a two-person company and it is better to sign one before a dispute escalates. It sits alongside the constitution and can deal with matters the Companies Act 1993 leaves open, such as how deadlocks are resolved, who makes key decisions, restrictions on share transfers, pre-emption rights, drag-along and tag-along rights, valuation methods and a buyout mechanism if one party wants to leave. It can also cover restraints on competing and confidentiality. Both shareholders must agree, so present it as protection for both. Each of you should take independent legal advice. If agreement cannot be reached, dispute mechanisms in the Act, such as the remedy for oppressive or unfairly prejudicial conduct, may become relevant.