Why your business needs a Shareholders Agreement

May 26, 2015
Reading Time: 2 minutes
Written by Dominic Woolrych

What is a Shareholders Agreement?

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 regulates the rights, responsibilities, liabilities and obligations of each shareholders. Examples of these include: share transfer, management structure, buying and selling shares, exit strategies, warranties, restraint of trade, dividend distribution, policies and procedures.

Why do I need a Shareholders Agreement?

Whilst new companies are upliftingly optimistic and may not think a Shareholders Agreement is required, a Shareholders Agreement is an important way to manage potential risks and disputes that may arise in the future. Disputes can arise at many points in the course of business, and having a standing Shareholders Agreement dictating how to deal with the situation is more beneficial than trying to negotiate a Shareholders Agreement when parties are aggravated. An existing Shareholders Agreement forms an important legal foundation for your business or start-up, to help ensure all investors are on the same page from the onset of the business venture.

It is also important to note that the Shareholders Agreement is private and does not have to be made public. This means that Shareholders Agreements do not need to comply with any set form or procedure, but just be drafted in a manner that is valid and enforceable at law.

What should my Shareholders Agreement include?

A Shareholders Agreement is tailored to the needs of the business and 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 constitutes the board of directors, and what each director’s role entails;
  • What the limitations to each director’s control/authority are;
  • What is to happen in adverse situations (e.g a director passes away, resigns or files for personal bankruptcy);
  • Policies that concern profit distribution;
  • What happens if a shareholder decides to leave or there is a falling out (e.g shareholder’s entitlements to when they leave; if the majority shareholders are able to force the minority to sell); and
  • What happens to departing shareholders shares, and how they are valued and paid for.
  • The clauses in a Shareholders Agreement can provide for certain decisions and actions to require a majority agreement, whilst others may require unanimity for important decisions that can affect single or groups of shareholders. 

Complete a Shareholders Agreement for your business by simply filling out our easy to use online interview.

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.

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