How Do I Know If I Need A Shareholders Agreement

Business House Australia General Counsel, Mark Gustavsson, shares some important tips about the importance of shareholders agreements when you co-own a company with others

Legally, you are not required to have an agreement. Why then, might a shareholder – or group of shareholders – elect to create an agreement?

What is a shareholders agreement?

A shareholders agreement is a binding contractual arrangement between parties which regulates rights and responsibilities. The rights and responsibilities a shareholders agreement can regulate include those around:

and more.

A shareholders agreement can therefore be useful in the event of a dispute concerning any of the above areas as it can provide the parties with legal mechanisms to help navigate those dispute areas.

A shareholders agreement can give greater protection

The agreement will work in conjunction with your company’s constitution, but will give greater protection than can be provided by the constitution alone. This is especially so, considering that many companies are often set up quickly and cheaply just with standard articles that will not include much detail regarding protective provisions for shareholders or define the limits of their responsibilities.

Minimize the potential for business disputes

A shareholders agreement is a cheap way to minimize the risk of dispute by making it clear how certain decisions are made, as well as providing a framework and procedures for dispute resolution.

A shareholders agreement can reduce the impact of changes in the personal circumstances of a shareholder

Unfortunate Events

Have you ever thought about what would happen if one of the other shareholders in your company was to pass away. What if the company is a shareholder and was to go into liquidation? Would you be prepared to negotiate the purchase of the share from the liquidator? Or what if a shareholder was to divorce from his or her partner, and the partner made a claim to the share in the company?

A shareholders agreement can be used to mitigate the risk of personal circumstances such as these affecting the company by safeguarding financial interests and the interests of the families in the event of death.

A shareholders agreement is a cheap way to minimize the risk of dispute by making it clear how certain decisions are made, as well as providing a framework and procedures for dispute resolution.

Where can I get a shareholders agreement?

You may wish to consider meeting with your accountant, your lawyer and any other business advisors to discuss the costs and benefits of creating a shareholders agreement. An experienced business lawyer will then be able to help you create a tailored agreement to suit your needs.

About Mark Gustavsson

Mark is the General Counsel for Business House Australia and is also the Principal Lawyer for specialist business law firm Mark Gustavsson & Associates.

Mark offers services in corporate and commercial law, international business, property and construction and commercial dispute resolution. Mark can do work for clients of all sizes, from small business to large national and multi-national companies.