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Every company is governed by its constitution. If it has none, the replaceable rules in the Corporations Act apply. The constitution deals mainly with how the company operates.
A shareholder agreement is a private contract between the shareholders, and usually the company. It covers the commercial deal between the owners, such as funding, exits and restraints. It is not lodged publicly, so the terms stay confidential. The two documents should be prepared together so they do not conflict.
Who can appoint directors, and how board decisions are made and recorded.
Major decisions that need approval from every shareholder or a set majority.
How further money is raised, and what happens if a shareholder cannot contribute.
When profits are paid out and when they are kept in the business.
Existing shareholders get the first chance to buy shares before any outsider.
A majority selling the company can require the minority to sell on equal terms.
A minority can join a sale on the same terms the majority receives.
What happens to shares when a shareholder resigns, retires or is dismissed.
How shares are bought back, often funded through insurance held for that purpose.
The agreed method for valuing shares whenever a shareholder must sell them.
The steps to follow when shareholders or directors cannot reach agreement.
Limits on departing shareholders competing, soliciting staff or using company information.
Many agreements treat departing shareholders differently depending on why they leave. A good leaver, such as someone who retires or becomes seriously ill, receives market value for their shares. A bad leaver, such as someone dismissed for misconduct, may receive a lower price. These clauses protect the remaining owners, but they must be drafted carefully to be enforceable.
A shareholder with a small stake can be outvoted on almost everything. Without an agreement, a minority shareholder may have no say over directors, dividends or the sale of the company. An agreement can give minority owners a board seat and a veto over key decisions. It can also let them join any sale. These protections are usually negotiated when the minority shareholder first invests.
The best time is when the company is formed, or when a new shareholder joins. At that point everyone is aligned and the terms are easy to agree.
Review an existing agreement when the business takes on investment, adds a shareholder or changes direction. An agreement written for two founders rarely suits a company with five owners and outside capital.
If you trade as a partnership, you need a partnership agreement instead. If your business runs through a unit trust, a unit holders agreement does the same job. Our business structures page explains how each structure works.
We prepare shareholder agreements on a fixed fee. We quote once we understand the number of shareholders and the issues the agreement must cover.
Yes. It is a contract between the shareholders, and usually the company. It can be enforced like any other contract.
Often more than large ones. In a small company, one disagreement between two owners can stop the business entirely.
Often more than large ones. In a small company, one disagreement between two owners can stop the business entirely.
