By Bianca Venten

5 October 2021

Too often do we see friends or family members starting a business together. Whilst this is a great idea, pulling your resources for the benefit of the friendship, it is critical to ensure your legal documents are in good shape to avoid any possible fall outs down the track.

What is a Shareholders Agreement?

A Shareholders Agreement is a document which sets out the ongoing relationship between the new company and its shareholders. It sits alongside the company constitution, and is called upon if there is a dispute between shareholders. For many start-up businesses, the Shareholders Agreement is the most important document and is required if there are multiple shares (by multiple, we mean anything more than one!).

 

If your company doesn’t have one, whether it is a new company or whether you have been existing and trading for years, it is good practice to have a Shareholders Agreement put in place before the company grows.

 

What does a Shareholders Agreement cover?

Shareholders Agreements will cover the important issues, such as: –

  • How directors are appointed;
  • How directors can be removed;
  • What specific issues will require a majority resolution of the board, and what decisions must be unanimous;
  • What happens when the company requires capital;
  • How dividends are paid;
  • What happens if one shareholder wants to sell;
  • Amending the rights of shareholders;
  • Amending or replacing the company Constitution;
  • What happens if a shareholder isn’t pulling their weight or has breached their duties to the company or other shareholders;
  • Board meetings and shareholder meetings;
  • Non-competition restrictions; and
  • Dispute resolution processes.

 

These issues aren’t issues, until they’re issues.

 

Without a Shareholders Agreement in place, a small contradiction or disagreement could turn into a large problem very quickly, as smaller issues are often left open to dispute. Nobody anticipates a problem will occur when going into business with family or friends, however it is our job as legal advisers to advise that sometimes, things don’t always end up the way they were planned. Having a Shareholders Agreement provides piece of mind that everybody has agreed on how the company and the business is managed.

 

The provisions for a Shareholders Agreement can vary for every company and there is a wide range of factors to consider before the document itself is prepared.

 

The Shareholders Agreement will survive the life of the company, and aim to ensure that the friendship will too!

 

If you require a Shareholders Agreement or if you believe your previously drafted agreement is insufficient, please get in touch with any member of the Commercial Team to discuss.

Related Articles

View All
Commercial Contracts & Agreements / Franchising & Licensing / Start-ups & Emerging Enterprises

Recording: TLFC Law Lunchtime Briefing: Internal Business Disputes

Chaired By Michael Fetter, Principal, and presented by Rob Oxley, Principal, Felicity Simpson, Special Counsel and...
Read More
Commercial Law / Commercial Contracts & Agreements

Commercial Tenancy Relief Scheme Regulations 2021

In the technology space, this time of year is often linked with the anticipated release of the new models of Apple...
Read More
Property & Development / Commercial Contracts & Agreements / Small to Medium Enterprises

COVID-19 Clauses in Contracts of Sale

The uncertainty and instability of the COVID-19 pandemic continues, as Melbourne endures lockdown 60 and other parts of...
Read More
Commercial Law / Commercial Contracts & Agreements / Corporate Advisory and M&A

Announcing our Promotions

Rob joined us in 2017 and immediately impressed us with his litigation skills and incredible work ethic It’s no...
Read More
Commercial Contracts & Agreements / Commercial Law

When contracts end: The perils of miscommunication and misunderstanding

From a practical perspective, the most critical thing for any party to a contract to appreciate is the importance of...
Read More
Commercial Law / Commercial Contracts & Agreements / Corporate Advisory and M&A

Negotiating Indemnities: Some Practical Tips

An appropriate indemnity can provide a valuable mechanism for risk allocation between parties to commercial dealings...
Read More
Commercial Law / Property & Development / Developments

TLFC Law Triple Finalists in the Lawyers Weekly Australian Law Awards 2019

Celebrating its 19th year, the Australian Law Awards, in partnership with UNSW Law, is the pinnacle of award programs...
Read More
Commercial Contracts & Agreements / Litigation & Dispute Resolution / Not-For-Profits & Charities

Write it in now, or forever hold your peace

All these contracts have one thing in common: you are going to be at a disadvantage if you are relying on any...
Read More
Commercial Contracts & Agreements / Leasing & Lease Disputes / Property & Development

Could you Be Contaminated?

Whether you are the purchaser of land, the seller, a landlord, a tenant, a developer or a lender, there are obligations...
Read More
Commercial Law / Commercial Contracts & Agreements / Franchising & Licensing

Franchisors Beware – the ACCC means business!

The action taken by the ACCC against the franchisor related to acting in breach of good faith and making false or...
Read More
Commercial Contracts & Agreements / Leasing & Lease Disputes / Small to Medium Enterprises

Retail Lease Disputes: what happens when tenants default

Choosing the right tenant is critical A prudent commercial landlord will review a prospective tenant’s financial...
Read More