Shareholders Agreements


A Shareholder’s Agreement is something that I strongly encourage all my clients who operate a business (either as a partnership or company) to have.  When I first see a client about starting a new business, they are often full of enthusiasm and great intentions however, have not given much thought about what could go wrong.

The breakdown of a business relationship is a very stressful time for owners and by simply having a Shareholder’s Agreement in place, you could save a lot of money on legal costs and stress and avoid Court.

What does the Shareholder’s Agreement cover?

The primary aim of the Shareholder’s Agreement is to resolve any potential issues that will arise in the operation of the business. It will also typically include:

  1. What happens on the death or total permanent disablement of an owner;
  2. Conflict of interest;
  3. Retirement;
  4. Contribution of capital;
  5. Composition of the board;
  6. Decision making process and resolutions that require a majority or unanimous consent;
  7. The roles of the directors;
  8. The contribution of capital into the business as and when needed;
  9. Ownership of intellectual property;
  10. Profit distribution policies;
  11. Restraints of trade; and
  12. Dispute resolution.

The Shareholder’s Agreement, as opposed to your company’s constitution, is more specialised and tailored to your company’s particular purpose, the nature of its business and the aims and wishes of its shareholder’s.

Advantages of a Shareholder’s Agreement

The main aim of the shareholder’s agreement is to bring certainty to the business relationship. In particular, a Shareholder’s Agreement will:

  1. Make the partners think about and address the issues at the right time (earlier rather than later);
  2. Create confidence between the partners as to the strategic direction of the business; and
  3. Help avoid expensive disagreements.

Preparing the Shareholder’s Agreement

Prior to preparing the Shareholder’s Agreement, you should speak with all shareholder’s and get an understanding of what you want to achieve.  Then, seek the advice of an experienced solicitor who will be able to explain to you the legal implications and then draft the Shareholder’s Agreement for you.

As you can see, there are many issues to consider and an experienced solicitor can help ensure the Shareholder’s Agreement is tailored to suit you. It is easy to see why a Shareholder’s Agreement is an important tool in business planning.

If you have any questions relating to Shareholder’s Agreements, please do not hesitate to contact me.

Tagged in: , , , , , , , , , ,

You may also be interested in:

6 Things You Can Expect When Declaring Bankruptcy

Declaring bankruptcy should be your last resort when you are faced with financial difficulties, whether as an individual or as a business owner. It is not exactly a “Get Out of Jail Free” card, as it comes with many adverse consequences, which may significantly impact your financial standing over a considerable period. So what consequences continue reading

How do you determine if a company is insolvent?

The answer to the question “How do you determine if a company is insolvent?” is important because there are serious consequences for a director if debts are incurred after the company has become insolvent, including civil penalties, compensation proceedings and criminal charges. However, it is often difficult to know when a company has crossed the continue reading

What to do if you receive an ATO Director Penalty Notice

Did you know that company directors may potentially become personally liable for unremitted Pay As You Go (PAYG) deductions and Superannuation Guarantee Charges (SGCs)? The Australian Taxation Office (ATO) has significant powers to recover a company’s unpaid liabilities personally through its directors and may issue a Director Penalty Notice (DPN). This article focuses on the continue reading

Liability Limited by a scheme approved under professional standards legislation | Website by VA