I am often asked to review shareholders agreements between existing shareholders and shareholders wishing to purchase a business. A question often asked is what voting rights they have.
The shareholder entering the business may reach a handshake agreement with the other shareholders to have a say in the general running and strategic direction of the business, without the responsibilities of being a director.
When the time comes to sign the shareholders agreement, the powers the shareholder thought they were to receive are nowhere to be found in the shareholders agreement.
Accordingly, if you are considering becoming a shareholder in an existing or new company and wish to protect your rights, it is important that you ask yourself the following questions:
- What types of issues can the following parties vote on:
(a) The Chairman;
(b) The board of Directors;
(c) The Shareholders.
- Who are the parties that make up the board of Directors, and how are the Directors appointed?
- Which of the parties mentioned in item 1 will get a casting or deciding vote if there is a deadlock between the parties?
- Whether you will have the same personal liability as other shareholders if the business is called upon to fulfill any future financial obligations.
A shareholders agreement tailored to your specific circumstances can assist the parties with:
- Knowing their full rights and obligations about voting rights before entering into a transaction;
- Knowing which issues they can vote on and what will happen if there is a deadlock or dispute between the parties;
- Knowing the types of resolutions for different decisions (ie unanimous special resolutions or ordinary resolutions);
- Ensuring that any disputes or deadlocks are resolved quickly and with minimal interruption to the day to day running of the business.
If you require advice or assistance when entering into a shareholders agreement, or with reviewing an existing or new shareholders agreement, please do not hesitate to contact me. We have assisted many clients who are a shareholder in a business.
The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.
Prefer to get in touch?
With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.