July 12, 2011

Shareholders’ Agreements: a sound investment

A shareholders’ agreement is a contract that regulates the rights and obligations of members of a company.  A shareholders’ agreement is not a mandatory document required under the Corporations Act2001 (Cth) (“the Act”), however, it provides an important mechanism for regulating aspects of a company not catered for in either the company’s constitution or the replaceable rules of the Act.  It further assists in the overall running of the business by providing certainty with respect to the obligations/expectations/rights of the members of the company.

Shareholder agreements generally cover the following matters (among others):

  1. exit strategies for members (i.e. agreements to sell shares on particular occurrences, i.e. death);
  2. the financing policy of the company;
  3. determining who is to manage the day-to-day business of the company;
  4. the requirements and conditions of any shareholder loans;
  5. the dividend distribution policy of the company;
  6. restraints of trade with respect to the members and their related key persons;
  7. a shareholder’s rights to appoint/remove directors; and
  8. any pre-emptive rights a member has to acquire shares in the event of another member selling their shares.

A further advantage of a shareholder agreement is to reduce the risk of potential disputes between members.  Shareholder disputes can be costly and only reduce business value.  Where a dispute does arise however, it is most important that a clearly defined procedure is contained in the shareholders’ agreement setting out  how the dispute will be handled, so as to minimise disruption to the business.

To discuss whether a shareholders’ agreement would be beneficial for your organisation, please contact Matthew Rouse on 07 3648 9900.