Shareholder Agreements – Do I need one?

by | Sep 29, 2020

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:

  1. dispute resolution;
  2. terms governing the sale of shares;
  3. mechanisms to value shares;
  4. non-competition terms to prevent a shareholder opening or being involved in a competing business; and
  5. 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.

If you have any questions about shareholder agreements or wish to instruct us to prepare one please get in touch with our Will Elder on (03) 9480 1155 or will@philwil.com.au.

Will Elder

Will Elder

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.