Shareholder Agreements 101
Shareholders are the lifeblood of your small business. As such, it is imperative to keep that blood healthy and pumping throughout the business, keeping things in check. In order to do that, you need a shareholder’s agreement: a private contract listing the rights, obligations and liabilities of each shareholder.
How Shareholder Agreements are Created
Shareholders agreements should be created at the beginning of a company’s lifetime, in a dedicated meeting with all parties present. While a company’s ‘constitition’ is a public document and needs to be registered with ASIC, a shareholders agreement is private and does not need to be lodged or registered.
Why You Need a Shareholder Agreement
A shareholder agreement will only become more important as your business expands. Of course it is not compulsory to have one, but doing so comes with a myriad of benefits, including:
- Dispute resolution
- Clearly explaining the rights and responsibilities of each party
- Ensures stability
- Safeguards shareholders’ interests
- Defines and explains the decision-making process
- Includes provisions for how shareholders can exit the company
What Shareholder Agreements Include
A good shareholder agreement should include:
- An exit strategy
- Mechanisms to deal with disputes
- Rights shareholders have, particularly towards managing directors
- Buy-sell provisions
- Financing laws
- Clauses regarding share transfers
- Observer rights
- Accession procedure
If you have any questions about shareholders agreements and how they operate, please do not hesitate to contact me. I am here to help.
DISCLAIMER: This explanation is for informational purposes only and does not constitute legal advice.