By Anna Thompson, Legal Assistant
Starting and running a successful business requires much planning and consideration. Often, multiple stakeholders are involved, each with their own interests and expectations. To ensure your business is protected and is run as smoothly as possible, it is imperative to have a well-drafted shareholders agreement.
What is a Shareholders Agreement?
A shareholders agreement is a binding contract between two or more shareholders in a company that sets out the relationship between the shareholders and the company.
In particular, it specifies the following:
- Who controls the company;
- The structure and management of the company;
- The process of acquiring or disposing of shares;
- Dispute resolution mechanisms;
- How shareholders’ rights will be safeguarded; and
- How the company will be funded.
Why Do I Need a Shareholders Agreement?
If your company has more than one shareholder, it is important to implement a shareholders agreement. This is the case even if your company is not looking to raise capital immediately.
The shareholders’ agreement clearly indicates to prospective investors that your company is well-managed. Additionally, the shareholders’ agreement outlines how potential disputes between shareholders will be resolved.
What If I Don’t Have a Shareholders Agreement?
Without a shareholders agreement, your company will be governed by its constitution and the default rules contained in the Corporations Act 2001 (Cth). As such, having a shareholders’ agreement allows you to have more of a say in how your company operates and what happens if a shareholder wishes to sell their shares and leave the company, dies, or becomes incapacitated.
The repercussions of failing to implement a shareholders agreement were seen in the case of Bainbridge Grill’d Pty Ltd & Ors v Simon Crowe & Ors, a Federal Court case where the relationship between the co-owners of the popular fast food chain Grill’d had broken down. Had a shareholders’ agreement been in place, much of the extensive legal fees, time in court, and emotional strain could have been avoided.
Having a well-drafted shareholders’ agreement is imperative for a company. You can tailor the agreement to your company’s needs and circumstances without relying on the default rules. At City Pacific Lawyers, our experienced commercial lawyers are ready to assist you with all your queries regarding shareholder agreements.
If you or someone you know wants more information or needs help or advice regarding shareholder agreements, please contact us at (03) 9592 3356, email office@citypacific.com.au, or fill in the web contact form here.
