Shareholder agreements provide a framework for addressing issues which can arise in a business, such as agreeing on the way in which a business is to be managed and resolving potential disputes between the shareholders. They are a crucial part of business planning and will almost certainly be called upon at key moments.

What is a Shareholders Agreement?

A shareholders agreement is a written document which provides clear documentation of the principles agreed upon by the owners of a business across a range of key issues.

What are the Benefits of Having a Shareholders Agreement in place?

There are various benefits to having a shareholders agreement including:

  • Clear documenting of the exit strategy for shareholders;
  • A framework for addressing business–critical issues when they occur;
  • A clear outline to aid shareholders when disputes arise; and
  • Settling of control measures to assist the business to avoid unplanned expenditure or debt.

How is a Shareholders Agreement different to a Buy–Sell Agreement?

A Buy–Sell Agreement addresses insurable risks such as debt, disability and trauma to an owner. A Shareholders Agreement, by contrast, seeks to minimise non-insurable risks by putting in place an agreed framework.

What if my trading structure is not a company?

The term "Shareholders Agreement" is used mainly in regards to company structures; similar instruments exist for other structures, such as a unit holder's agreement in the case of a unit trust and a partnership agreement in the case of a partnership.

The main elements of a shareholders agreement are as follow:

  • A description of each person's involvement in the business;
  • Management principles, including dispute resolution clauses;
  • Rules regarding the equity of the company, such as allotments and transfer of shares;
  • Rules relating to the debt of the company, including who must contribute funds and how they are to be repaid;
  • Pre-emption clauses which cover what should happen if a Shareholder wishes to sell their shares, this will cover a range of issues such as who can purchase the share, how the share is to be valued in the Notice Period that needs to be given;
  • Decision making rules (i.e. which decision can be made unilaterally versus by majority versus unanimously);
  • Force disposal clauses setting out the circumstances in which a Shareholder can be compelled to sell their shares.
  • Clauses dealing with deadlocks;
  • Restraint of Trade imposing limitation on Shareholders (current and former) from competing with the business or soliciting clients or staff;
  • Agreed rules as to when the Agreement can be legitimately terminated by the parties involved.

What is the Role of Kaden Boriss Legal?

We coordinate and facilitate the entire process, drawing on our extensive experience drafting shareholder agreements. Please contact Andrew Bautovich for further advice on (03) 8963 8038.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.