Shareholders Agreements – What are they?

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Posted by: | Date: 7 June 2019

One of the most important documents that a company should have is a shareholders agreement. It will outline in detail how the company should be operated and outlines all shareholders’ rights and obligations.

Whilst the Corporations Act 2001 and a company constitution provide a range of safeguards, obligations and procedural matters relating to how shareholders must act and must be treated, having a shareholder’s agreement in place will clearly define those matters. It ensures that all shareholders are treated equally and equitably.

What are shareholders agreements?

A shareholders agreement supplements a company’s constitution by providing greater detail regarding the company’s activities and decision making. Typically, a shareholders agreement will contain a clause providing that, to the extent of any inconsistency with the company’s constitution, the shareholders agreement prevails.

Some of the most important matters that shareholders agreements address are such things as the raising of funds, who can be invited to become a shareholder and what happens in the event a shareholder wants to sell or becomes incapacitated or passes away.

It also allows shareholders to make decisions about what outside parties may become future shareholders.

Many start-up companies do not consider putting in place a shareholders agreement and this can be detrimental in the future, particularly where a company has significant growth.

In our opinion, a shareholders agreement should fit each companies individual and unique requirements. Whilst at a minimum a shareholders agreement will have clauses addressing the following matters:

  • Rights to appoint and remove directors
  • Terms to protect minority shareholders so that, for example, unanimous shareholder approval is required for certain company decisions
  • Restrictions on freedom to dispose of shares and, if other shareholders have pre-emption rights, at what valuation such transactions should take place
  • Restrictions on changing the nature of the business
  • Terms regulating the raising of capital to avoid diluting existing shareholdings.
  • Dividend policy
  • Limitations on directors to do certain things such as investing in a new capital project or charge the company’s assets
  • The requirement for a business plan
  • How disputes should be resolved

This list is just an indication of what needs to be considered and not exhaustive.

Do you have further questions on a shareholders agreement?

At FC Lawyers we have an expert team who have assisted in the drafting of shareholder agreements for companies and businesses both large and small across an in the profit and non for profit sector including agriculture, construction, education, entertainment, finance, healthcare, insurance, hospitality, manufacturing, media, real estate, service related, start-ups, technology, trade, transport and tourism.

Contact our team today to discuss your shareholders agreements needs, or if you have any other legal issues.

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