To invest in cryptocurrencies, buyers need to obtain currency through a third party and also have access to a cryptocurrency wallet: software where the currency can be “stored”.

Although there are a significant number of people who have bought into one of the various cryptocurrencies out there, it’s important to realise that in certain important respects, cryptocurrency isn’t like more traditional investment choices. Here we highlight some of the key differences between cryptocurrencies and other available investments.

Cryptocurrency is unregulated

Cryptocurrency is self-regulating, moderated through algorithms. Because it’s not under the jurisdiction of any government, it’s not subject to the regulatory frameworks which govern other investments.

For example, the conduct of financial institutions is governed by the FSA; investing in property is regulated through laws relating to property ownership. These regulatory and legislative requirements provide a degree of security for investors, including clear paths of accountability and responsibility. In the event that a cryptocurrency investment goes wrong for any reason, you may find that you have limited legal recourse.

Cryptocurrency is entirely online

Most other investments involve some sort of tangible asset: investing in property means you obtain a building; company shares are investments which involve a real-life company; even investing on the stock market involves calculated risk relating to real companies or goods.

Cryptocurrency is entirely virtual. You will have nothing to show for your investment, except possibly a profit when it’s time to sell. This isn’t necessarily a bad thing, but it does mean that investing in a currency such as Bitcoin, Ethereum, Litecoin or Ripple is significantly different to other investments.

Cryptocurrency is a new investment opportunity

There’s never been anything quite like cryptocurrency before, so it’s quite an unknown quantity in terms of its appeal as a long-term investment. Although some people have reported making a profit when they’ve sold their cryptocurrency, it’s unclear at this stage whether profit is going to be sustained in the longer term.

Other investments tend to have historical records available. Any investor can check how property prices or share prices have fluctuated over time. Although previous performance cannot be taken to indicate future success, the vast majority of wise investors do, at least, take historical records into consideration. Cryptocurrency investment is therefore very much a step into the unknown.

Cryptocurrency has limited use as a currency

Virtually every other investment option involves either goods or services – something which has a use. Property, companies or other assets all have some function.

Cryptocurrency is rarely used as a currency and is almost entirely traded by investors. There are very few things that can be bought with cryptocurrency, so it’s not as if it can be used in the same way as dollars or GBP. It’s possible that some cryptocurrencies might become widely used in the future but it is difficult to know which cryptocurrencies will prove useful and which ones will be forgotten.

Cryptocurrencies are a new investment opportunity which has attracted considerable interest over the past few years.

Given the several significant differences between it and other, more traditional forms of investment, we suggest that significant research is needed before deciding to invest in a cryptocurrency. While it may appear attractive in the short-term, it’s unclear at this stage whether cryptocurrency buyers stand a reasonable chance of realising a return on their investment.

To find out more about the legal situation as it applies to cryptocurrency as an investment, request your free, no-obligation consultation from Integra Solicitors on (0161) 870 6629.

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If your startup business has two or more shareholders, you should consider setting up a formal shareholders’ agreement. Agreeing on how you will handle fundamental issues could save a lot of anguish later on.

What is a shareholders’ agreement?

A shareholders’ agreement is an arrangement between a company’s shareholders that describes how the business will be operated and outlines each shareholder’s rights and obligations. It is different from the statutory requirement to have articles of association.

The shareholders’ agreement ensures each shareholder is treated fairly. Some observers compare it to a prenup agreement agreed ahead of marriage. It will deal with how disputes are resolved and agree on exit plans for each party and what they may be entitled to.

Establishing an agreement at the outset is important

It is important that the agreement is established at the very outset. This ensures the arrangements you have with your shareholders are clearly set out to minimise the risk of dispute. You can’t always foresee the issues that will arise in the future, so it makes sense for all concerned to establish the agreement on day one.

A shareholders’ agreement ensures there is certainty and clarity about how the company is run and confirms that responsibilities are clearly outlined and understood. It will reduce the potential for conflict during the early stages of establishing the company and then later down the line. Ultimately it will ensure the business runs smoothly.

A shareholders’ agreement can mitigate the risk of minority shareholders having relatively little say in the running of the business or can intentionally protect the interests of majority shareholders. It can also establish how much power and control directors have, and when and how they should consult with shareholders.

Decision limbo or deadlock

Some disagreements will lead to a position where shareholders cannot agree on the best way forward. If there is no majority to determine which direction to take, the business can become locked in limbo. This is common when a number of shareholders hold the same percentage share and become deadlocked. A shareholders’ agreement will help avoid this scenario.

Exiting the business

At some point, one or more shareholders are likely to want to leave the business and you might think this will be easy to manage. But often, it isn’t. At this point, there are a huge number of things to consider – and without an agreement concluding what happens next, it can be very difficult.

What happens if the shares are now very expensive and the other shareholders can’t afford to buy them? What happens if the exiting shareholder wants to set up in direct competition? What happens if the exiting shareholder sells their shares to someone you don’t want involved in your company or that person inherits them as a beneficiary?

Furthermore, without a shareholders’ agreement, it can be almost impossible to remove a shareholder from the company, even with recourse to a costly court case.

Catastrophic disputes

Most people who go into business with each other do so for a good reason, and mostly because there exists an element of trust and some mutual goals.

But as businesses grow, views and circumstances can change, and differences arise. If there is no clarity on what happens next, this can be the end of the business.

Disputes in companies can and do destroy businesses, careers, reputations and relationships. The enormous time, energy and fees required to resolve some differences can be catastrophic. A shareholders’ agreement costs relatively little and could just save the day.

We have put together a shareholders Agreement checklist for you! – Click here to download

If you’re looking for advice on shareholders’ agreements, contact the team at Integra Solicitors today.

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