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What is a shareholders agreement and Why do you need one?

What is a shareholders agreement and Why do you need one?

A Shareholders Agreement can be a valuable asset to your business. Find out why you need one here.

26th June 2015

What is a Shareholders Agreement:

A Shareholders Agreement governs the relationship between the shareholders of a company.   A Shareholders Agreement is normally created at the beginning of a business venture and is a binding contractual agreement that binds the rights and responsibilities of the shareholders.

It is used to create a legal framework for the following:

  • Share transfer
  • Management Structure;Investment decisions
  • Share sale rules
  • Exit Strategies, Warranties
  • Restraint of trade
  • Dispute resolution
  • Policies and Procedures
  • Voting rights, Rights and Obligations
  • Dividend Distribution
  • Appointing Directors
  • Confidentiality

Why Do you need one?:

Whilst there is no legal requirement to have a shareholders Agreement it is a good idea to have one when there is more than one shareholder of the company.The Agreement is signed by all shareholders and clearly sets out the rights and responsibilities of each signatory. the Agreement can save you time, money and stress should a dispute occur.

Benefits of an agreement:

Save time:

A Shareholders Agreement results in the smooth functioning of your company, it is a useful tool in the collaborative management of your company. The agreement provides greater flexibility by allowing contracts to be tailor made to the company’s needs instead of being subject to company law.

Save money:

The investment in a Shareholders Agreement saves money in the long term, as disputes can be a costly process in the future.  A pre-arranged agreement outlining responsibilities will ensure the company runs smoothly and profitably, as there is clarity and certainty as to what can and can’t be done.

Save stress by preventing disputes:

A Shareholder Agreement will prevent disputes as it outlines clearly the framework in which decisions are made or procedures to prevent dispute. For example, disputes often arise when shareholders sell or exit, this can be prevented.

Create confidence in your company:

Having a Shareholders Agreement shows to the world at large that the business is a stable structure, assisting in raising finance from banks or creditors.

Protect shareholders interest:

Having a Shareholders Agreement protects the rights of minority shareholders and their investment, by allowing a majority percentage of shareholders to be selected to allow amendments to the agreement.

Safeguard each shareholder:

An agreement minimises the risk of an individual shareholder’s personal circumstances affecting the company or other shareholders within the company financial interest, thus creating a safeguard.

How do I obtain a shareholders agreement?

Obtain a Shareholders Agreement online today with LawPath.  You will need to ensure all Shareholders agree to the terms.

Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.

Dominic Woolrych

Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.