Shareholder Agreements

What is a Shareholders Agreement?

A Shareholders Agreement is a legally enforceable document that specifies the roles and responsibilities of each shareholder, as well as the ownership and management of the company, the protection of shareholders’ rights, and the process for shareholders to leave the company. It is a legal document drawn up to determine rights, obligations and relationships of shareholders.

It is a type of specialised contract used to regulate the management of a company. It needs careful consideration to make sure it properly reflects the intentions of the parties.

Shareholders Agreement vs Replaceable Rules

Without a Shareholders Agreement the Replaceable Rules found in the Corporations Act 2001 (C’th) will determine how a company is to be managed. These are standard ‘one size fits all’ arrangements and are much less flexible than a tailored Agreement.

Using a Shareholders Agreement drawn up specifically for your company offers you the ability to have the right set of rules designed with your business in mind.

Our highly experienced Commercial Law team, headed up by partner Rob Ffrench, can draft a bespoke Shareholders Agreement for your needs, ensuring that you can focus on the business rather than being weighted down by unnecessary red tape.

 

Frequently Asked Questions (FAQs):

Who approves a shareholders agreement?

The directors or shareholders make decisions by passing resolutions. The number of votes needed to pass a specific resolution is determined by your agreement.

Why do I need a shareholders agreement for my startup?

Even if your firm does not intend to seek funds right away, it is critical to create a shareholders agreement as soon as it looks that there may be more than one stakeholder.

A solid shareholders agreement will:

• provide a framework for transparent ownership and control of your startup. It will help you explain how you intend to run the company and what you must remember to fulfill your obligations as a stakeholder. It will also help you outline the types of shares, rules on the transfers of shares and more.

• demonstrating to prospective investors that your company is well-managed and offering openness about ownership and management. This will reduce the likelihood that investors will press you to change or revise the terms of your agreement to make them more investor-friendly; and

• describe how future shareholder dispute resolutions will be made. While problems may look unlikely at first, it is advantageous to agree on the settlement procedure from the beginning so that there is at the very least an established framework in place that may kick in if (and when!) challenges do arise.

What if your shareholders wish to amend your shareholders agreement in the future?

Given that shareholders get to vote on what goes into the shareholders agreement, they may include provisions outlining potential future changes. Typically, such a clause would allow the agreement to be altered only if all shareholders agreed to the change.

What if a shareholder violates the shareholders agreement?

A shareholder who is dissatisfied with another shareholder’s actions might sue that shareholder for a substantial violation (material breach) of the conditions of the shareholders agreement.

Material breaches typically occur when a shareholder fails to deliver capital when required by law or the agreement, fails to comply with any particular requirement of the agreement, or conducts fraud. Whether or not your shareholders agreement needs to be amended to classify any other incident as a material breach (e.g., an employee shareholder breaking an employment agreement) is, of course, dependent on the type of your organisation. Be very specific and make a list of all the situations where you think there might be material violations.

If a material breach is not corrected, the shareholder responsible may be forced into selling their shares, pay compensation to other shareholders, or have their voting rights revoked.

Which parties should sign the shareholders agreement?

The corporation and each shareholder must sign or execute the shareholders agreement. Remember that the legal requirements for a company and an individual to sign papers varies, so double-check the execution blocks and sign the correct one!

 

Bell Legal Group has the expertise you need

Whether you need a Shareholders Agreement drawn up, amended or just need some advice to understand how it might affect you or your business we can help.

Contact us today by calling 07 5597 3366 or simply fill out the ‘Contact Us‘ form below and we’ll get in touch to discuss how we can help you.

Please note that the information on this web page is general in nature and is not legal advice nor is it intended to be. Always obtain professional legal advice specific to your circumstances.