When you’re talking shares or shareholders, having a water-tight contractual agreement is paramount. No ifs, no buts—no exceptions.
A working blueprint for the way a company is run and the rules pertaining to those with a stake in it, a shareholders agreement will prevent any unnecessary conflicts or messy legal issues from emerging later down the line.
Here we dig a little deeper into why you need a shareholders agreement and what it should contain.
What is a shareholders agreement?
As mentioned, a shareholders agreement outlines how you will run your company, the decision-making process, and what happens if shareholders disagree on an issue or someone wants to exit. Essentially, a shareholders agreement governs all of the critical aspects of the professional relationship between your company’s shareholders.
Creating a tailored shareholders agreement is essential to your business’s long-term success as it:
- Provides a clearcut and legally binding guide of all rights and obligations in one document.
- Empowers business owners and shareholders to create agreements based on their specific professional or commercial circumstances.
- Builds trust and peace of mind as everyone knows exactly where they stand.
If you fail to put a full shareholders agreement in place, you could find yourself in hot water if an unexpected event happens or a dispute occurs—instances that could seriously hinder the progress of your business.
What does a shareholders agreement cover?
Now that you know the importance of creating a shareholders agreement for your company, let’s glance at some of the key aspects your contract should cover—starting with:
Scope and purpose
In this particular context, outlining the company’s scope and purpose will ensure everyone is on the same page from the get-go. Here you can state what the board can and cannot do without the approval of the shareholders.
Changes due to life events
Life is unpredictable at times and things can crop up unexpectedly. That said, your shareholder’s agreement should outline what will happen if a shareholder dies or they become incapacitated in a way that affects their position.
The decision-making process
By detailing the shareholder decision-making process, you will ensure that if any important considerations need to be made concerning any aspect of the business, there is structure. If you have a process, you will be able to make decisions efficiency, diplomatically, and without dispute (essential for a healthy, happy business).
The disagreements resolution process
Expanding on our previous point, if a dispute or disagreement should arise, having a legally binding resolutions process will prevent things from getting ugly. If you have a resolutions framework, you will be empowered to work through any issues swiftly and successfully.
Shareholders’ informational rights
Naturally, shareholders will want access to information related to the company. To ensure you’re able to offer access to valuable information in a way that is fair, regulated, and creates a sense of transparency, you will be able to continue running the business free from friction or distraction as everyone will know where they stand.
Share classification and classes
While the constitution will outline different classes of shares, your shareholders’ agreement can dig deeper into share classes as well as voting rights.
Doing so will allow you to classify shares and rights in a way that suits your specific circumstances, creating a better business eco-system as a result.
At this point, you will no doubt agree that putting a shareholders agreement in place should be at the top of your priority list.
For a detailed rundown of how to draft a shareholders agreement the right way, explore our definitive how-to guide.
As one of Australia’s leading commercial contract lawyers, we can guide you through the process and ensure your shareholders agreement is seamless, professional, and water-tight.
For more information, please contact us and we’ll be happy to get the ball rolling.