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Shareholder Agreements

Shareholder Agreements

Defining shareholder agreements

A shareholder agreement in Australia is a legally binding document that outlines the rights, obligations, and responsibilities of shareholders in a company. It is typically entered into by the shareholders of a company to govern their relationship with each other and to regulate matters related to the management and operation of the company.

Shareholder agreements are private documents. They are not required to be lodged with any government authority. However, it is an important tool for clarifying the rights and obligations of shareholders and can help prevent disputes and conflicts within the company. It is advisable for companies, especially those with multiple shareholders, to have a well-drafted shareholder agreement in place to protect the interests of all parties involved. It’s recommended to consult legal professionals with expertise in corporate law when drafting or reviewing a shareholder agreement.

What should be included in shareholder agreements

  • A preamble, identifying the parties (e.g. a company, directors and its shareholders)
  • A list of recitals (rationale and goals for the agreement)
  • How responsibilities will be divided between the directors and shareholders;
  • How shareholders may acquire or dispose of shares
  • Details of optional versus mandatory buying-back of shares by the company in the event that a shareholder gives theirs up
  • Details of optional versus mandatory buying back of shares in the event of the death of a shareholder
  • A right of first refusal clause, detailing how the company has the right to purchase a selling shareholder’s securities prior to them selling to an outside party
  • Notation of a fair price for shares, either re-calculated annually or via a formula
  • Requirements for business plans, budgets and accounts
  • Requirements for insurance policies
  • Dispute resolution provisions
  • Confidentiality arrangements
  • What will happen if the relationship between shareholders comes to an end.
Shareholder Agreements

Who uses shareholder agreements?

Shareholders’ Agreements are used in large and small enterprises, including:

  • Quasi partnerships: A relatively small group of individuals who operate a business using a company as the operating entity.
  • Existing businesses looking for new capital: A founder who has established the company and invested considerable time and intellectual property in starting the business is seeking additional capital to expand and exploit the potential of the business.
  • Start-up company and venture capitalist: An entrepreneur has a business or concept capable of rapid development or a large-scale development which cannot be undertaken without much larger capital input, a venture capitalist or group of investors may be prepared to invest in the business on the basis that they have a much higher degree of control.
  • Incorporated joint ventures: Incorporated joint ventures are commonly used where two existing companies, each carrying on their own businesses, come together to operate a discreet business.
Shareholder Agreements

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