The launch of a new business venture is invariably accompanied by certain euphoric beliefs on the part of its participants.

Each of the new participants believes that the business will become hugely profitable and they will be wealthy and enjoy productive and stable relationships.

This dream-like state often leads the participants to conclude that they and their fellow shareholders in the new company don't need a contractual arrangement to govern their relationship.

In fact, however, shareholder relationships are frequently fraught with problems and the pressure of business can often damage or destroy established relationships between family, colleagues and friends.

It is for this reason that I strongly recommend to my clients that they always enter into a shareholders agreement with their new business colleagues.

That doesn't mean the agreement has to be unwieldy, however.

While some of my peers in the legal profession believe that shareholders agreements should be long, complicated (and virtually unreadable) documents, that does not have to be the case.

There are, however, certain key issues that must be addressed.

The number of shares that each shareholder holds is a crucial component of any shareholder relationship.

Majority vote is an important concept in Company law. For example, a shareholder (in the absence of a shareholders agreement or other legal arrangement) with over 50 percent of the shares in a company will usually control that company.

Consequently, a shareholders agreement should ensure that the board of directors, or other shareholders, cannot issue shares, warrants or options or some other right in the equity of the company without the consent of certain, if not all, of the shareholders.

This can be covered quite easily by a shareholder consent provision, which would usually provide that before the company can issue any equity in the company, all of the shareholders (or at least a certain percentage) must consent in writing or at a meeting of the shareholders.

Shareholder consent is usually required for a broad range of other important management decisions as well.

Some examples might include the hiring of employees; the assumption by the company of any debt; entering into any material contract; participation by the company in a joint venture; or any delegation by the directors to an executive director or committee.

Clearly, not all of these provisions are needed or warranted in every case. In advising clients it is my practice to go through each in turn with a view to keeping the consent provisions to a minimum where possible.

Too many consent provisions can actually be a hindrance in the operation of the company, or, worse, the company may operate in technical breach of the shareholders agreement. The key is to find a middle ground between shareholder protection and operational efficiency.

The board of directors set policy and govern the day-to-day business of the company. Consequently, the constitution of the board is important to ensure shareholder interests are represented.

In the absence of a provision in the shareholders agreement, the majority of the shareholders will be able to appoint all of the directors. This would leave a minority shareholder with the prospect of little, if any, board representation.

Providing in a shareholders agreement that a shareholder has a right to appoint a director or, indeed, that a meeting of the directors cannot take place unless that director is present, provides an effective shareholder protection which should not materially impact the day-to-day running of the company.

Share transfer restrictions are perhaps the most important provisions in any shareholders agreement.

Frequently, shareholders enter into a business venture when they have an existing relationship with the other shareholders. Clearly they would be upset if one shareholder sold his interest to a third party unknown to, or a competitor of, the remaining shareholders.

To provide shareholder comfort, a shareholders agreement usually requires a selling shareholder to offer his shares to the other shareholders first before they may be sold to a third party.

Indeed, some shareholder agreements provide that where a purchaser is found for the shares of one shareholder, the other shareholders can sell their shares to that purchaser as well, and on the same terms.

This column covers only a few examples of the principal provisions I would expect to find in a shareholders agreement.

Such an agreement can save business partners a lot of pain, aggravation and uncertainty.

Just as importantly, it will enable the managers of the company to focus more clearly on the business rather than on shareholder issues.

Attorney David Lines is a member of the company department at Appleby Spurling & Kempe. Copies of Mr. Lines' columns can be obtained on the Appleby Spurling & Kempe web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.