Should you consider your partnership or shareholders’ agreement as part of your estate planning?
13 July, 2018Commercial LawCommercial Law & Business TransactionsEstate PlanningEstate Planning, Estate Administration and Disputes, Trusts and SuperannuationNews & UpdatesShareholder Agreements
Shareholder’s and partnership agreements
A shareholders’ agreement is a contract between the shareholders of a business to regulate their rights, responsibilities, obligations and liabilities, and to protect their interests in relation to the business. Importantly, a shareholders’ agreement can govern what happens if major life-changing events occurs such as death or incapacity.
A shareholders’ agreement is not compulsory under the Corporations Act 2001 (Cth), but will assist shareholders in the governing of their business relationship. It is supplementary to a company constitution and the two documents should be read together to ensure the provisions are not inconsistent and do not attempt to contract out of the Corporations Act.
A partnership agreement plays a similar role to a shareholders’ agreement for partners of a business, and is supplementary to the rules set out by the Partnership Act 1891 (Qld).
What do these types of agreements cover?
The nature of a shareholders’ agreement means that the content and terms are customised by the parties and will be individual to that business, however, typical provisions will cover:
- operating procedures, objectives of the company and contribution expectations;
- directorship appointments, decision-making and meeting procedures;
- financial policy including debt funding and dividend distribution;
- share valuation procedures;
- first right of refusal to acquire another member’s shares if a member wishes to sell;
- drag along rights (the requirement for minor shareholders to sell their shares if a majority shareholder wishes to sell their shares to a bonafide purchaser);
- tag along rights (the right of a minority shareholder to ‘tag along’ with a majority shareholder if the majority shareholder sells to a third party);
- non-dilution provisions requiring a specified member’s interest to be maintained at the expense of others;
- dispute resolution, restraint of trade and confidentiality provisions;
- consequences in the event of death or permanent/temporary disability of directors, shareholders or principal; and
- default, retirement and terminating events.
Estate planning and shareholder’s agreements
From an estate planning perspective, the shareholders’ agreement should clearly set out the insurance arrangements for directors, shareholders or key personnel, who is responsible to make insurance arrangements, ownership of such policies, and the consequences upon the temporary or permanent disability or death of a director, shareholder or key personnel, including the amount and timing of any payments.
This article was written by Bell Legal Group. Its publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice.