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A Shareholders Agreement will help you govern the relationship between shareholders of your company. Although you and your partners are on good terms now, sometimes running a company will put a strain on that relationship. A Shareholders Agreement helps protect your interests in these situations. If disagreements arise, it can be very helpful to have a clear idea of what the parties agreed to before the dispute, or before something changes one shareholder's ability to continue working in the company.
Note: This Shareholders Agreement does not contain vesting provisions for each of the shareholders. For vesting provisions use our Quick Quote feature.
Use this Shareholders Agreement if:
- You would like to lay down the rules between the shareholders of your company.
What does the Shareholders Agreement cover?
- Who can be a shareholder;
- Who can serve on the board of directors;
- What happens if one of the shareholders becomes impaired or dies;
- What happens if a shareholders files for bankruptcy, resigns, retires or is fired;
- The share value for company stock;
- Who will be required to purchase the shares of a shareholder who's leaving; and
- How much will be paid for the purchase of such shares.
Other names for Shareholders Agreement include:
- Founder's Agreement; and
- Shareholders' Contract.
What’s the difference between a Shareholders Agreement and:
A Co-Founder Agreement
A Co-founder Agreement is a contract between Co-Founders setting out the ownership, initial investments and responsibilities of each Co-Founder. This agreement also safeguards you in the case of a dispute, as it can provide protection to show what the co-founder agreed too. The difference between a shareholder agreement and a co-founder agreement is that a co-founder agreement only effects the co-founders, whereas the shareholder agreement involves co-founders and shareholders and their interests in the company.
A Company’s Constitution governs the company’s internal management. A Constitution is an essential and crucial document that governs the activities of your company as well as the relationship of your company’s directors and shareholders. A company’s constitution differs from a shareholders agreement as the constitution deals with the founders, directors and shareholders, unlike the shareholders agreement which only deals with shareholders.
A Partnership Agreement
A Partnership Agreement can help prevent misunderstandings and disputes about what each partner brings to the partnership, and what they are entitled to receive from the income of the business. Contrastingly, a Shareholders Agreement is only between the shareholders and the company in regards to their rights and responsibilities.
Articles of Association
The articles of association usually covers everything to do with the operational framework of a company. This is different to a shareholders agreement as it focuses on the shareholders and their relationship with the company.
Is a Shareholders Agreement legally binding?
Yes, it is a legally binding document. Once the shareholders agreement is signed, a contract is formed.
I’ve registered a company. Do I have to have a Shareholders Agreement?
Typically, Shareholder Agreements are completed when a company is registered and all parties are fully committed. This ensures everybody is aware of the direction, structure and responsibilities of each shareholder and knows the process for dispute resolution.
While uncommon, it is worth noting that a shareholders agreement can also be formed at a later stage should this be the preference of everyone involved.
What Act does this Shareholders Agreement fall under?
A shareholders agreement falls under the Corporations Act (2001). This act contains the regulation of shareholders and the requirements to be issued shares within a company.
What classes of shares can be issued?
There are various types of shares that can be issued. Examples are company issued options, contributing shares, preference shares and ordinary shares.
What are drag along tag along provisions?
Drag along tag along provisions allow majority shareholders to require the minority shareholders to sell their shares. This often happens when a company is being taken over by another. A drag along tag along provision will “drag along” the minority shareholders whilst the majority shareholders are in the process of selling the company, requiring minority shareholders to sell their shares in the process.
Drag along tag along provisions are not included as part of our basic document, however these can be included as part of a fixed-price quote from our lawyer marketplace.
Should a lawyer review my Shareholders Agreement?
To properly establish a Shareholders Agreement, it is necessary to obtain sound legal advice. There are various implications that can result from incorrect drafting of a Shareholders Agreement, so it is very important to seek legal advice to ensure that your agreement is set up correctly in order to maximise security and protection of the company and its shareholders.
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