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Shareholders Agreement

Shareholders Agreement

Shareholders Agreement

Perth Commercial & Corporate Lawyers

For a private company with more than one shareholder, a shareholders agreement serves as a compass, guiding the company through the often choppy waters of decision-making, disputes, and ownership changes. Our lawyers can assist you with:

  • Drafting bespoke shareholders agreement
  • Updating an existing shareholders agreement
  • Providing advice on a shareholders agreement
  • Shareholder Meeting Minutes, Shareholder Accession Deeds, Share Certificates & Shareholder Resolutions

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What is a Shareholders Agreement?

A shareholders agreement is a contract governing the relationship and business arrangements between shareholders of a company and the company and its shareholders. It is a legally binding document and is an important document that can affect the direction and operation of the business.

If a company has more than one shareholder, we highly recommend that you have a written shareholders agreement in place. A shareholders agreement will address important information such as shareholders voting rights, earning entitlements, dividends payable, director duties, management and operation of the company, issue of new shares, and sale of shares. This information can have a major impact on the direction of a business, its finances and operation. As such, it is imperative that key information is written in a legally binding agreement.

Each shareholders agreement is tailored for the size of your company, the number of shareholders and what you are seeking to achieve. As such, the content of a shareholder agreement and its complexity varies depending on your needs and circumstances.

If you do not have a shareholders agreement, this can be problematic especially if you have a dispute or deadlock between the shareholders. We have seen cases where this can result in the business going into a trading halt as a result of a dispute.

Why Are Shareholders Agreements Important?

Decision Making

The shareholders agreement will detail the types of decisions that can be made by the directors and those that require shareholders’ approval. For example, it will detail the percentage of votes required to pass resolutions and make decisions on certain decisions such as changing the direction of the business.

Appointment & Removal of Director

A Director plays a key role in the running of the company, and it is important to have the right person in place. The shareholders agreement will detail who has the right to appoint or remove a Director and the process of doing so.  The shareholders agreement will also detail how often the Board should meet.

Director Duties and the Board

The shareholders agreement sets out key duties of the Director/s on top of what is required under the Corporations Act. For example, a duty to act with reasonable care and diligence, a duty to prevent insolvent trading, and a duty to act in good faith and for a proper purpose.

Rights of Shareholders

Shareholders normally have voting rights, and this will be specified in the shareholders agreement.  The agreement will also include frequency of shareholder meetings, and the issues that shareholders need to decide on.

Issuing New Shares & Dividends

A shareholders agreement will set out the process by which shares should be issued. This is an important clause as issuing of new shares affects the percentage ownership of existing shareholders, which may affect their rights.  Usually, new shares are first offered to existing shareholders.  The shareholders agreement also includes how the company will determine what amount dividend is payable and the amount and method for payment.

Dispute Resolution

A key element of a shareholders agreement is details on the process to resolve disputes. For example, if there is a dispute on how the company is managed or how decisions are being made by the director; or if there is a dispute on whether a shareholder has committed misconduct or breached its obligations under the shareholders agreement. Having a clear written process of the steps to take in the event of dispute minimises disruption to the business.

Sale of Existing Shares

The shareholders agreement will detail how a shareholder can or when it must sell its shares to fellow shareholders or to a third party. This is important as sale of shares can affect the company direction and operation. This usually includes details on how shares should be valued/priced. In the event where a third party wishes to buy shares, then a drag along and tag along clause is relevant.

Employees as Shareholders

If a company’s employees are also shareholders of the company, then a vesting or leaver clause will set out the process of how the shares can be earnt or sold. For example, through share vesting, the employee can earn shares of the company through performance or by staying with the company. If the employee leaves the company, a leaver provision will detail their share is handled when they leave, depending on whether they are 'good leavers’ or ‘bad leavers’. The shareholders agreement could also include terms to protect the company with clauses on non-compete, confidentiality, intellectual property, and non-solicitation requirements.

Frequently Asked Questions



Commercial & Corporate Lawyers

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