Exiting a shareholders agreement in Australia means following the exit provisions written into your agreement, completing a share transfer or buyback, and lodging the relevant ASIC forms within 28 days. The exact steps depend on the type of exit clause in your agreement and whether you’re the seller or the buyer of the departing shares.
- Your shareholders agreement governs how you exit, not general law. Read the exit clauses first. They override the default Replaceable Rules under the Corporations Act 2001 (Cth).
- You cannot unilaterally cancel issued shares. Shares must be bought back by the company or transferred to another shareholder. The agreement will say which applies and at what price.
- ASIC must be notified within 28 days. Use Form 484 to update the register of members and directors. If the buyback exceeds 10% of issued shares in 12 months, ASIC must be notified at least 14 days before the buyback proceeds.
- Good leaver and bad leaver provisions determine the price you receive. Leaving due to illness or redundancy usually attracts a full market value payout. Being dismissed for misconduct typically means a lower, formula-based price.
- A Deed of Settlement documents the exit terms. Even when the financial terms are agreed verbally, formalising them in a Deed of Settlement protects both parties from future claims.
What does a shareholders agreement say about exit?
A shareholders agreement is a private contract between the shareholders of a company. The exit provisions are the clauses that govern what happens when someone wants to leave. At a minimum, a well-drafted agreement should address voluntary exits (someone wants to sell), compulsory exits (someone is forced out due to misconduct, insolvency, or death), how shares are valued on exit, and the payment timeline for the departing shareholder.
If your agreement doesn’t cover these things clearly, exit disputes are almost inevitable. In consultations, Lawpath lawyers repeatedly see the same problem: founders with generic template agreements that turn out to be missing exactly the clauses that matter most when one person wants out. A vague valuation clause, in particular, is one of the most common triggers for costly disputes.
What are the main exit clauses to look for?
Before you do anything, find and read the exit provisions in your actual agreement. Each of the following clauses works differently, and triggering the wrong one (or missing one that applies to you) can cost you significantly.
Pre-emption (right of first refusal)
This is the most common exit clause. If you want to sell, you must first offer your shares to the existing shareholders at the same price and on the same terms you’ve been offered (or plan to offer) externally. Only if they decline can you sell to a third party. This protects existing shareholders from having an unknown party appear on the register.
Put and call options
A call option gives the remaining shareholders the right to purchase the departing shareholder’s shares at a set price or by a set formula. A put option gives the departing shareholder the right to force the remaining shareholders (or the company) to buy their shares. These work together in some agreements as a mutual exit mechanism, useful when one party wants out but the other doesn’t yet have the funds to buy them out immediately.
Shotgun (buy-sell) clause
This is a deadlock-breaker, most common in 50/50 companies. One shareholder names a price for the company’s shares. The other shareholder must then either buy at that price or sell at that price. The forced-choice structure keeps the named price honest: you wouldn’t set it too low if you might end up selling, or too high if you might end up buying. It’s a powerful mechanism but it favours the party with better access to capital.
Drag-along and tag-along rights
Tag-along rights protect minority shareholders. If a majority shareholder sells to a third party, a tag-along clause gives you the right to join that sale on the same terms. You don’t get left behind with a new majority partner you didn’t choose. Drag-along rights work in reverse: if the majority wants to sell the whole company, they can force the minority to also sell. Both clauses matter most when the company is being acquired.
Good leaver and bad leaver provisions
Good leaver and bad leaver provisions set the price a departing shareholder receives, based on how they leave. A good leaver (typically someone who exits due to illness, death, redundancy, or by mutual agreement) usually receives full market value for their shares. A bad leaver (someone dismissed for cause, who breaches the agreement, or who leaves to set up a competing business) often receives a discounted price, sometimes as low as the original subscription price. The definitions matter. A poorly drafted bad leaver clause that captures someone who leaves for any reason is both unfair and difficult to enforce.
How are shares valued when a shareholder exits?
Valuation is where most exit disputes start. If your agreement doesn’t specify a method, you and the remaining shareholders will each form a different view of what the shares are worth, and there’s no objective way to resolve it without going to court or mediation.
Common valuation methods used in Australian shareholders agreements include:
| Valuation method | Best suited to | What to watch out for |
|---|---|---|
| Earnings multiple (EBIT or EBITDA) | Profitable, trading businesses | The multiple is subjective. Specify the agreed multiple in the agreement itself |
| Net asset value | Asset-heavy businesses or property companies | Can significantly undervalue goodwill and brand |
| Discounted cash flow (DCF) | Growth businesses with forecasted revenue | Highly sensitive to assumptions. Disputes often arise over forecast inputs |
| Independent expert valuation | Any business where parties can’t agree | Specify who appoints the expert and who pays, otherwise this also becomes a dispute |
For early-stage companies with little or no revenue, a nominal share value is common. Lawpath advisors regularly see situations where shares are transferred for $1, which is legally valid, but both parties should get independent tax advice before agreeing to any transfer price, as capital gains tax implications can apply regardless of the sale price.
What are the practical steps to exit a shareholders agreement?
Once you and the remaining shareholders have agreed on the exit terms, the process follows a predictable sequence. The exact documents required depend on whether the exit is a share transfer to another shareholder or a company share buyback.
Option 1: Share transfer to an existing or new shareholder
This is the simpler path. The departing shareholder signs a share transfer form and, typically, a share sale agreement that records the agreed price. The company then updates its member register and lodges a Form 484 with ASIC within 28 days. The new shareholder (or the acquiring existing shareholder) becomes the registered holder from the date of transfer.
Option 2: Company share buyback
A buyback is where the company purchases the shares from the exiting shareholder and cancels them. It requires both a directors’ resolution and a shareholders’ resolution approving the buyback and the agreed price. The company must also satisfy the solvency test under s 257A of the Corporations Act 2001 (Cth): the buyback must not materially prejudice the company’s ability to pay its creditors. If the buyback exceeds 10% of issued shares within a 12-month period, ASIC must be notified at least 14 days before the buyback proceeds using the prescribed form.
Documenting the exit: Deed of Settlement
When a director and shareholder is exiting, particularly in contentious or complex circumstances, a Deed of Settlement provides a clean legal endpoint. The deed documents the agreed financial settlement, the share transfer or buyback terms, the director’s formal resignation, mutual releases from future claims, and any ongoing obligations like confidentiality or restraint of trade. A Deed of Settlement must be executed as a deed (not just a standard agreement) to be immediately enforceable. Lawpath advisors consistently recommend getting the deed documented even when both parties are on good terms. It prevents disputes from re-emerging once the money is paid.
Separately, don’t forget: if the departing shareholder was also a director, you need to notify ASIC of the director resignation on the same Form 484. And if they were the company’s public officer with the ATO, a replacement must be appointed and notified to the ATO within 28 days as well.
What Lawpath lawyers see in shareholder exit consultations
Across hundreds of shareholder exit consultations, a few patterns come up repeatedly.
The generic template problem. Many founders drafted their shareholders agreement from a free or cheap template early in the business and haven’t looked at it since. When an exit happens, they discover the agreement is missing the valuation clause, has no dispute resolution mechanism, and doesn’t address what happens if someone breaches the agreement on the way out. By the time you’re in an exit scenario, it’s too late to negotiate better terms into the agreement.
The agreement doesn’t need to be rewritten when someone leaves. This is a common wrong assumption. The shareholders agreement stays in force for the remaining and future shareholders after an exit. You don’t amend or replace it just because one party has left. The departing shareholder’s rights under the agreement simply cease once the share transfer or buyback is completed and documented.
Restraint of trade clauses are regularly misaligned. It’s common to see the shareholders agreement contain a three-year post-exit restraint while the employment agreement for the same person has a 12-month restraint. This creates an inconsistency the departing shareholder can challenge. If you’re reviewing an exit, check that the restraint periods in both documents are aligned.
CGT is almost always left until the last minute. A share transfer, even at nominal value, can trigger a capital gains tax event. The cost base of the shares matters. Lawpath advisors consistently recommend getting tax advice before signing the transfer documents — not after.
What if there is no shareholders agreement?
Without a shareholders agreement, the default Replaceable Rules in the Corporations Act 2001 (Cth) and your company constitution (if you have one) govern how shares can be transferred. Proprietary companies have some default restrictions on share transfers under s 254D of the Act, but these don’t give you the protection of negotiated pre-emption rights, valuation mechanisms, or dispute resolution processes.
In practice, exiting a company without a shareholders agreement usually means negotiating from scratch, without any agreed framework for valuation, price, or timeline. It’s slower, more expensive, and significantly more likely to end in a dispute or court proceedings. If you’re currently without an agreement, getting one in place before any exit conversations begin is worth doing now.
Frequently asked questions: exiting a shareholders agreement
Can I be forced to sell my shares against my will?
Yes, if your shareholders agreement contains drag-along rights or compulsory exit provisions. Common triggers for a compulsory exit include insolvency, conviction of a serious offence, material breach of the agreement, ceasing employment with the company, or death or permanent disability. Outside of these triggers, you generally cannot be forced to sell unless the agreement specifically allows it.
How long does it take to exit a shareholders agreement?
A straightforward share transfer between consenting parties can be completed in days once the documents are signed and ASIC is notified. If the exit is contested, or if the agreement triggers a valuation process with an independent expert, the timeline extends to weeks or months. ASIC Form 484 must be lodged within 28 days of the resignation or transfer event regardless of any ongoing negotiations.
Do I need to update the shareholders agreement when someone exits?
No. The shareholders agreement remains in force for the remaining and future shareholders after an exit. The departing shareholder’s rights simply cease once the share transfer or buyback is completed and documented. You do not need to rewrite or replace the agreement unless you want to update its terms at the same time.
What tax applies when I sell my shares?
A share sale or transfer is a capital gains tax (CGT) event in Australia. The gain or loss is calculated based on the difference between your cost base and the sale price. If you’ve held the shares for at least 12 months, the 50% CGT discount may apply. Shares transferred at nominal value (for example, $1) are still subject to CGT based on the market value of the shares at the time of transfer. Get tax advice before you sign the transfer documents.
What is the difference between a share transfer and a share buyback?
In a share transfer, the departing shareholder’s shares are sold to another person (an existing shareholder or a new third party). In a share buyback, the company itself purchases and cancels the shares. A buyback reduces the total number of shares on issue. Both require ASIC notification. A buyback exceeding 10% of issued shares in 12 months requires ASIC to be notified at least 14 days before the buyback proceeds.
What happens if a shareholder dies?
The shareholder’s shares form part of their estate and pass to the beneficiaries under their will (or to the administrator if there is no will). A well-drafted shareholders agreement includes a compulsory exit provision for death, giving the remaining shareholders the right to purchase the deceased’s shares at a pre-agreed valuation before they pass to unknown third parties. Key-person life insurance is commonly used to fund this buyout.
Exiting a shareholders agreement doesn’t have to be complicated. If your agreement is clear, the exit provisions are the roadmap, and following them protects you from liability on the way out. The hard part is usually discovered when the agreement is silent on the thing that matters most.
If you’re preparing for an exit, or you’re reviewing an agreement before one happens, Lawpath’s legal team can help you work through the steps quickly and without the guesswork. Book a consultation with a commercial lawyer today.
