What is a Shareholders Agreement? (2024 Update)

A Shareholders Agreement is a legal contract entered into and agreed upon by all shareholders of a company. The Agreement outlines the original intentions of the parties and lists the rights and responsibilities of each shareholder. It is also legally binding. Examples of these include: share transfer, management, buying and selling shares, exit strategies, warranties, trade rules, dividends, policies or procedures. This agreement should be made after incorporation, when all parties are fully committed. Shareholders Agreements fall under the rules of the Corporations Act 2001 (Cth), which governs the rules around issuing shares. It is different from a company constitution, which governs the company’s internal rules and other stakeholders. It also differs from a co-founder agreement, partnership agreement or articles of association.

Why do I need a Shareholders Agreement?

A Shareholders Agreement can manage potential risks and disputes that may arise in the future. Many new companies will believe this sort of agreement is not necessary. However, it may prove to be a cost-saving dispute resolution mechanism in the future. Disputes can arise at any time. By having an agreement in place dealing with the situation, it can reduce the amount and duration of disputes. An existing agreement forms an important legal foundation for your business or start-up. It helps to ensure all investors are on the same page from the onset of the business venture.

It is also important to note that the agreement is private and does not have to be made public. This means that the document does not need to comply with any set form or procedure. Although, it does have to be valid at law.

What should my Shareholders Agreement include?

The agreement is tailored to the needs of the business. It should contain clauses that fit the purpose of the agreement. Some of the information found in a Shareholders Agreement include:

  • Who the shareholders are;
  • Who makes up the board of directors, and what each director’s role is;
  • What the limits to each director’s control/authority are;
  • What is to happen in adverse situations (e.g. a director passes away, resigns or files for goes bankrupt);
  • Policies that concern profit;
  • What happens if a shareholder decides to leave or there is a falling out (e.g. rights when they leave; if the majority are able to force the minority to sell); and
  • What happens to departing shares, and how they are valued and paid for.

The clauses in the agreement can provide for certain decisions and actions to require a majority. Others may require unanimity for important decisions that can affect single or groups of shareholders. Clearly, these agreements are an important part of forming a company.

Complete a Shareholders Agreement for your business by simply filling out our easy to use online interview. You can also upgrade to have a specialist lawyer provide legal advice and add customised clauses to your document. This will ensure the agreement is drafted with maximum security and protection for the company and its shareholders. A business lawyer can provide help where needed.

You may also like
Recent Articles

Get the latest news

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions

Share:

Register for our free live webinar today!

Managing Casual Employment: A Comprehensive Guide for SMEs

12:00pm AEDT
Tuesday 9th April 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

This article explores everything you need to know in regards to navigating trademarks, alongside
Learn about the types of liquidators, their role when winding up a company and how they impact creditors of a business.
All you need to know about hosting your company's Privacy Policy URL. A Privacy Policy outlines how your platform handles personal data of visitors.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.