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Why Every Business Big or Small Should Take Advantage of Shareholder Agreements

A Shareholder Agreement is a document which regulates the rights of shareholders and sets out protocols for the internal management of a company.

Shareholders Agreements can be used alongside of a company’s constitution or the replaceable rules contained in the Corporations Act.  They are an ideal tool for addressing a range of issues relating to the internal management and control of a business.

What are some of the issues that a Shareholder Agreement can address?

Shareholder Agreements can be used to address matters such as:-

  • contributions to capital,
  • voting rights,
  • matters requiring board approval,
  • incoming shareholder responsibilities,
  • selection of directors,
  • activities of directors,
  • loans to shareholders and
  • dividend policy etc.

Shareholder Agreements can also be used to implement strategies to deal with certain events that may occur in the future, thereby minimising costs and the likelihood of disputes or disagreements.

A Shareholder Agreement can:-

  • Give the company an avenue to remove a minority shareholder who is in conflict with the remaining shareholders about the direction of the business or the way the business is being run by buying out the shareholder at a fair and reasonable price;
  • Allow shareholders to have control over the sale of shares to outside parties by implementing a “right of first refusal” in favour of the existing shareholders;
  • Set out procedures detailing how the ongoing control of the company is to be managed;
  • Ensure that any shares held in a marital “pool of assets” of a shareholder who is separating or divorcing are not transferred to the spouse partner of the shareholder but are sold back to the company;
  • Ensuring that any shares that form part of the estate of a deceased shareholder and that would otherwise pass to a beneficiary under the Will or statutory intestacy rules, are sold back to the company by the executor.

Putting a Shareholder Agreement in place allows you to address issues such as those listed above in advance, so if and when such a situation arises, your company is well and truly prepared.

It is well worth your time, and a wise investment, to put a Shareholder Agreement in place.  It is a cost effective and proactive way to ensure the company is protected and that time and expense involved in addressing such issues should they arise in the future, are minimised, with clear guidelines in place as to how to address them to avoid disputes.

Further resources:

Shareholders Agreement

Buy/Sell Agreement

Deed of Accession (incoming shareholder agrees to be bound by Shareholder Agreement)