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Ensuring clarity and stability: The importance of shareholders' agreements

“Do I need a shareholders agreement for my company?” This is a question often asked by business owners whose companies are at various stages – whether it be at the inception of the company, or a few years down the track when the company is looking to raise capital and bring on additional shareholders.


Our answer nonetheless remains the same.  We strongly recommend every company have a comprehensive and robust shareholders’ agreement to provide the foundation for its corporate governance and to otherwise set in stone the rules for a raft of future events that may or may not occur.   

 

Some might think that a constitution is sufficient, and that the existence of the constitution subjugates the need for a shareholders’ agreement however these documents cover two different areas of company governance.


A constitution outlines generally how the company will run in the day to day and the relationship between the company and its directors whereas a shareholders’ agreement is a binding contract between the shareholders.


The majority of constitutions are pro-forma documents created by third party service providers, not tailored to the specific need of the business.  Certain key elements such as the structure and management of a business, company’s funding requirement, shareholders’ exit mechanism, restraint of trade, procedures on the death or TPD of a key person and company valuation methodology are rarely addressed in constitutions.  

 

A well-drafted shareholders agreement can however be tailored to the needs of you and your business and address key priorities and concerns of your business, such as:

  • Resolving deadlocks between majority shareholders;

  • Share buy backs;

  • Employee share option plans;

  • Tag along and drag along rights in the event of large scale sales;

  • Life insurance with respect to key personnel;

  • Dividend policies;

  • Restraints of trade;

  • Shareholders' exit mechanism.


The main advantage of having a shareholders' agreement is that it will enable your shareholders to fully understand their roles and responsibilities to the company which in turn can prevent conflict.


Shand Taylor Lawyers can assist in drafting a shareholder’s agreement which provides your company and its shareholders with transparency, certainty and a cost-effective way to govern the rules and management of your company.



Please get in touch if you would like us to review your existing shareholders' agreement or would like assistance in drafting a shareholders' agreement.


Brad Clark, Director

(07) 3307 4527


(07) 3307 4542


Annie Xu, Associate

(07) 3307 4550

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