Why you need a shareholder agreement

Ensuring Corporate Documents' Enforceability - What to Know

14/08/2023

A shareholder’s agreement is a contract between the shareholders of a company, which governs the relationship between each shareholder, and specifies who controls the company.

While it’s not a legal requirement, if your company has more than one shareholder, it’s advisable to have a shareholder’s agreement. A well-drafted agreement can help avoid costly disputes and ensures all shareholders are aware of their rights and obligations.

Your shareholder’s agreement will also work in conjunction with your company’s constitution. The constitution is more of a generic document, but your shareholder’s agreement is tailored specifically to each company and its circumstances.

You will need an experienced corporate lawyer to draft the agreement, ensuring that each clause reflects the requirements of the company and the shareholders. It’s also important to ensure you are compliant with ASIC and the Corporations Act.

Your shareholder’s agreement should also outline a process for dispute resolution, which will protect the interests of the company and the shareholders. 

Even if your shareholders are friends and family, having a dispute resolution process down on paper is an important safeguard. In fact, if your shareholders are family and friends, it’s probably more vital than usual to have a written agreement – the last thing business owners need are personal disputes that spill over into the company.

The agreement should outline which decisions are made by company directors, and which must be approved by shareholders. 

Issues such as the day-to-day running of the company are normally be done by the board of directors, but other issues – including director remuneration, acquisitions, and share issues – generally need the approval of shareholders.

An agreement will also help you grow your company. A shareholder’s agreement will provide clarity for any future potential investors in your company, and help them understand the rules, rights and responsibilities that apply to shareholders.

And as the founder of a business, you should be looking to protect your initial equity and maintain a level of control – and reward – into the future. A well-drafted shareholder’s agreement can help you do that.

Here at GLG Legal, we can tailor a shareholder’s agreement to the specific needs of your company. Get in touch with our experts today. 

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