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Outlining the Role of Directors: What to Include In Your Shareholders Agreement

Outlining the Role of Directors: What to Include In Your Shareholders Agreement

There's no one correct form of shareholders agreement. This raises the question, what should you include in your shareholders agreement? Find out here.

9th October 2019

A shareholders’ agreement, is an arrangement among a company’s shareholders that describes how the company should be operated and outlines shareholders’ rights and obligations. The fundamental purpose of this agreement is to ensure shareholders are treated fairly while the company’s interests are also protected.

Shareholders within the same company may also want different provisions depending on their equity within the organisation. For instance, minority shareholders may be more concerned with provisions that protect them from being marginalised during decision making. In contrast, individuals with a majority share may be more interested in ensuring their rights accurately reflect their shareholding.

Key aspects to include

Director and management structure

A shareholders agreement should contain provisions which manage the company’s director and management structure. This includes clauses related to how the company will be managed. An important inclusion is determining what type of decisions require a majority (50%), special (75%), unanimous (100%) or other type of approval.

Specify the Responsibilities of Shareholders

Specifying the obligations and responsibilities of shareholders is an important aspect of a shareholder agreement. It aids in creating clarity regarding operational processes and subsequently prevents shareholder disputes from occurring. These responsibilities should be used to define expectations held for an individual, so if an issue arises the agreement can be revisited.

How shareholders should resolve disputes

Shareholder disputes can significantly impact the workplace and a company’s performance. Subsequently, it’s important to ensure you’re prepared for any conflicts. There are numerous ways to deal with disputes and these specific measures should be incorporated into your shareholder agreement.

Shareholder contributions

The agreement should specify how the shareholder have and will fund the acquisition of their shares. For instance, certain shareholder may contribute cash to receive shares whereas others may transfer intellectual property or services in exchange for shares.

Exit strategy

It’s important to ensure you are prepared for the end of your business. Shareholders may have differing perspectives on how they wish to exit the business, this can include a buy-out, public listing or a business sale. Furthermore, this provision should include what would happen if individuals want to exit the company prior to the business terminating.

Conclusion

It is strongly advisable to create a shareholders agreement if you are starting a company or at a later stage in your business’ life and don’t already have one. The guide above is a great place to start to ensure you include the right provisions within your agreement.

Don’t know where to start?
Contact a Lawpath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Author
Gopi Giri

Gopi currently works in the content team as a Legal Intern for Lawpath. He is in his fourth year of a Bachelor of Law and Commerce (Accounting) at Macquarie University. Gopi is interested in cyber law and future innovations in the legal industry.