A shareholders’ agreement is a legally binding contract between the shareholders of a company, outlining their rights, responsibilities, and the rules for managing the business. It’s a specialised document tailored to the particular purposes of the company, the nature of the business and the wishes of the shareholders.
Ideally, a shareholders’ agreement should be prepared when the company starts out, which allows shareholders to address any issues before the business gets underway.
Shareholders’ agreements are unique to each company, but broadly, they should cover the following:
Board composition and management of the company
What is the management structure, how are directors appointed, and what is the scope of their duties.
Decision making
Which decisions need unanimous consent? How will additional shares be issued? Shareholders should also decide on what needs a simple majority, and how directors are removed from the board.
Prohibited activities
Shareholders should agree they will not run competitive businesses, or poach customers or employees of the company.
Funding
What are the shareholders obligations when it comes to funding? Are shareholders required to provide funds for the start-up costs?
Profit distribution
How company profits will be dealt with.
Issue and transfer of shares
The agreement should cover how new shares are issued, and how existing shareholders take up new share issues. Shareholders often also agree not to transfer any shares without the approval of existing shareholders.
Dispute resolutions
This is vital for the success of the board and the company. Having a process in place for dispute resolution can save shareholders a lot of time and money.
Because each shareholders’ agreement must be specifically tailored to the company and the intention of shareholders and others associated with the business, legal advice is essential.
A well-drafted agreement, drawn up before the company starts out, will save you and your business partners a lot of headaches and heartache.
The business and commercial law experts at GLG Legal can prepare a shareholders’ agreement that works for your individual situation. To make an appointment with one of our solicitors, contact our office on: (07) 3161 9555 or email info@glglegal.com.au.