The Benefits Of A Shareholders' Agreement

Setting up and running a business can be a busy and stressful time. Unfortunately, business owners often neglect a crucial step for the protection of their business’ success and longevity, a shareholder’s agreement.

A shareholder’s agreement governs the relationship between the shareholders and directors and sets out a framework for how a variety of situations and decisions should be dealt with. In the absence of a shareholders’ agreement, the operation and governance of a business will be administered by the business’ Constitution and the general rules set out in the Corporations Act. However, these are generally broad and aren’t tailored to each business’ unique needs. Rather, a shareholders’ agreement specifically sets out how matters such as the appointment and removal of directors, sale of shares, and disputes between shareholders should be dealt with in the unique context of your business. Accordingly, a shareholders’ agreement is crucial to protect the best interests of a company.

When should a shareholders’ agreement be made?
Although it is best for an agreement to be put in place early at the start of the business, a shareholders’ agreement can be implemented at any time during its lifecycle. Additionally, it is important for a shareholders’ agreement to be reviewed regularly to ensure the agreement reflects the current intentions and circumstances of the business.
 

What matters can a shareholders’ agreement govern?

As every business is unique, shareholders’ agreements must be tailored to address the specific interests and needs of each business. As such, the matters which may be governed by a shareholders’ agreement are not limited and may include:

• Decisions: Which decisions are to be made by directors or shareholders and the majority required for each?
• Directors: How and when directors are to be appointed or removed?
• Dividends: Are dividends to be paid and if so, how much and to whom?
• New Shares: What is the process to issue new shares, buy back, split, or convert shares?
• Share Price: In the event of a share sale, how will the share price be calculated and where a dispute arises regarding the share price, how will this be resolved?
• Disputes: Importantly, how will disputes between shareholders be resolved?   
  
  

Need further help?

CJM Lawyer’s team of commercial solicitors are experienced in dealing with the preparation of shareholders’ agreements. Protect your business’ success and longevity by contacting the team at CJM Lawyers to prepare or review a shareholders’ agreement.

Disclaimer: This article is for general understanding and should not be used as a substitute for professional legal advice. Any reliance on the information is strictly at the user's risk, and there is no intention to create a lawyer-client relationship from this general communication.