Shareholders Rights - Sajen Legal

Everything You Need To Know About Shareholders Agreements

If you’re planning on investing in a company, you probably expect that your investment will allow you to realise certain benefits in the future.

Perhaps you’ve been promised a share in the company’s profits, or offered a managerial role in the business. Maybe you want to influence the company’s decision-making on a larger scale.

Whatever your plans may be, we can’t stress enough the importance of having a solid shareholders agreement in place before you buy in.

Why an agreement?

Things can get very messy if you are relying on handshake promises that haven’t been backed up in writing.

Without a shareholders agreement, your rights and responsibilities as a shareholder will be governed by the terms of the company constitution and/or corporations legislation that apply to the business.

Those rules leave a lot to be desired, as they typically only set out your liability in certain circumstances (e.g. when the company can call on any unpaid amounts for your shares).

An agreement can cover areas that aren’t otherwise dealt with in the company constitution and/or corporations legislation, and remove a lot of room for argument between shareholders. This is particularly important if there are additional personal rights that you want to enforce in the future.

What should be included?

At a minimum, we recommend a shareholders agreement set out:

The rights attaching to various classes of shares
The voting process for key decisions (e.g. appointment or removal of directors)
Directorship/management of the company
Responsibility for preparing company reports/budgets/plans and any auditing process
What each shareholder will contribute to the company and how shares are to be paid
How dividends are to be issued
The rules governing the company shareholding, including processes for transferring existing shares or issuing additional shares and how new shareholders can subscribe
How assets are to be held by the company
The purpose and scope of the business to be conducted by the company
The expectations of each shareholder in terms of their role and commitment to the company and its business
Any confidentiality obligations
Any restraint of trade terms to apply to shareholders, or are they free to pursue other ventures?
Company policies
Dispute resolution clauses – so that there is an efficient and cost-effective process to resolve problems
A clearly defined process for shareholders to enter and exit – because relationships don’t always stay the same

Sajen legal can assist with the drafting and negotiation of shareholders agreements, tailored to meet your specific needs.

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