What is a Shareholder Agreement?
A shareholder agreement is a private contract made between all the shareholders of a company, setting out the rights, obligations and liabilities of each shareholder. Such agreements do not have to comply with any set form or procedure. However, they must be drafted so as to ensure that the agreement is valid and enforceable.
A shareholder agreement needs the consent of all shareholders and, unless otherwise specified, all the existing shareholders must consent to any changes or alterations.
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Companies may adopt a constitution upon incorporation or defer to the Replaceable Rules in the Corporations Act 2001 (Cth). Some times it might be assumed that a company constitution is sufficient to address the rights and obligations of shareholders.
In contrast, a shareholder agreement can be an extremely useful legal document for managing any issues affecting shareholders, not covered by the constitution, which might arise in the future.
What Should you Include in a Shareholders’ Agreement?
Every shareholders’ agreement should be individually tailored because every company is different. The specific provisions of each shareholder agreement should take into account the number of shareholders, the objectives of the shareholders, the funding arrangements, and the nature of the business or industry in which the company operates. However, there are also some basic clauses that every shareholder agreement should have. They can set out each of the jobs each shareholder has to carry out.
Shareholders’ Agreements usually contain clauses dealing with:
- Deadlock provisions designed to break a deadlock among shareholders as to the management of the company;
- Alternative dispute resolution provisions to assist shareholders to resolve disputes without recourse to legal action;
- Pre-emptive rights provisions, such as the right of refusal if a shareholder wishes to sell his or her shares or the requirement of the consent of the Board of Directors;
- Provisions setting out triggering events requiring the transfer of shares to existing shareholders, such as the death of a shareholder, insolvency events, serious breaches of the Shareholders’ Agreement or loss of the required certification etc.; and
- Share valuation methods.
For 25 years we have prepared shareholders’ agreements, all commercial contracts and handled disputes for banks and companies of all sizes as well as for small businesses and individuals.
Disputes often occur over the terms of contracts and debt /capital disputes between Partners, Directors and Shareholders but you could also be having internal business disputes over how your business is being run, or disputes over financial returns and capital contributions.
We provide legal advice on and preparation of the best terms and conditions clauses in contracts and agreements to protect individuals, companies and businesses and to provide security.
We generally charge a fixed rate for drafting contracts, subject to the complexity of the contract.