Shareholder Agreements – Do I need one?
Shareholder Agreements – do I need one?
You may be starting a new business or have already commenced operations and wish to formalise the relationship between the respective business owners.
If you use or intend to use a company structure to own and operate your business it is important that the relationship between any shareholders is formalised.
A shareholder agreement will provide rules that govern the relationship between the owners of a company and are especially important should a breakdown in the relationship occur or if one party wishes to “get out” of the company.
Some common questions we are often asked include:
What should a shareholder agreement include?
Some of the key matters that need to be dealt with are:
- dispute resolution;
- terms governing the sale of shares;
- mechanisms to value shares;
- non-competition terms to prevent a shareholder opening or being involved in a competing business; and
- rules for how the company will be operated.
It is important that these matters are agreed upon before a dispute occurs or a party wishes to leave the company.
Does an agreement need to be registered?
No, a shareholder agreement does not need to be registered. It is a private arrangement between the shareholders and is generally a confidential document.
How to draft a shareholder agreement?
It is important that any shareholder agreement is customised for the particular company to which it applies. While you may be able to obtain a template online, without specialised legal knowledge you cannot be sure the agreement you use is appropriate for your company and enforceable. It is important that a shareholder agreement be prepared by a suitably qualified and experienced lawyer.
Does a shareholder agreement override a company constitution or articles of association?
In general, yes. A shareholder agreement is generally drafted so that it overrules the terms of a company constitution or articles of association. However, it is important to note that a shareholder agreement cannot overrule the Corporations Act (Cth) and must be drafted in accordance with this act.
Do all shareholders have to sign?
Yes, for a shareholder agreement to be useful all shareholders would need to be signed up parties to it.
Is a shareholder agreement legally binding?
If a shareholder agreement is properly drafted it will bind the shareholders.
This is especially important in situations such as a relationship breakdown between the shareholders. A properly drafted agreement will govern how the shareholders might deal with a defaulting shareholder and allow a mechanism to resolve the dispute which could include forcing a shareholder to sell their shares using an agreed pricing mechanism contained in the agreement.
Will has developed a broad commercial practice in which he advises clients on business acquisition and sale, commercial agreements, commercial and retail leasing, and commercial litigation. Learn more about Will's legal experience.