Shareholder Agreements

What is a shareholders agreement?

A shareholders agreement is a contractual agreement between the shareholders of a company dealing in particular with the ownership and transfer of those shares and other issues relating to the running of a company. The proprietor’s interest is in the form of shares in a company, but a similar unit holders agreement may be implemented for units in a unit trust.

  • Shareholder agreements usually incorporate some or all of the following:

    • How shares are to be issued, owned and transferred by shareholders
    • Default and potential buy out of a shareholders interest
    • Sources of funding for the business
    • Structure of a board of directors, including the number of directors, requirements to become a director, the procedure for subsequent appointment and termination of directors
    • Management and possible limitations on the powers of the board of directors
    • Specific policies on various shareholder issues, including voting powers  and whether simple majority resolutions or special resolutions are required in terms of the Corporations Act
    • Administrative matters, e.g. who will be the company secretary?
    • Financial management and accounting
    • Whether an annual plan and budget is required
    • Confidentiality issues
    • Dispute resolution procedures
    • General provisions.

Advantages of shareholder agreements

  • Minimise uncertainty for the business operation.
  • Clarity for all parties, particularly in respect of voluntary departures from the business by shareholders, (e.g. resignation as a shareholder) or ‘default’ departure from the business (e.g. as a result of a breach of one of the material terms of the shareholders agreement).