A Shareholders Agreement is an essential (but strangely not mandatory) corporate contract. The Corporations Act 2001 (Cth) does not adequately deal with the rights of shareholders on its own and the company constitution may not always protect shareholders in the event of a dispute.

A Shareholders Agreement a binding agreement governing the relationship between shareholders, specifying details such as:

• Who will control the company;

• The direction of the business;

• How the company will be owned and managed;

• How and when new shares will be issued;

• Director’s duties;

• Decisions regarding unanimous resolution;

• Frequency of board meetings;

• Dispute resolution;

• How directors/shareholders can be removed; and

• Exit details and strategy for shareholders.

Before a Shareholders Agreement can be drawn up there are 3 main questions that need to be answered:

1. Is the company a start-up or is there a substantial change of ownership?

2. Is there a change to the organisational structure or a new change in company direction?

3. Do you want to create and implement a dispute resolution process?

A Shareholders Agreement will allow for the clarification of these questions, and will complying with the following:

1. The Corporations Act 2001 (Cth) (Act);

2. The company’s constitution;

3. The common law; and

4. The Foreign Acquisitions and Takeovers Act 1975 (Cth) (if applicable)

A Shareholders Agreement cannot override the Corporations Act 2001 (Cth) (Act).

How do you Create a Shareholders Agreement?

A Shareholders Agreement is drafted as a deed, which means the shareholders are bound to the deed as soon it is executed.

For a deed to be drafted certain particulars about the company are required:

1. A copy of the company constitution;

2. The date the company was incorporated;

3. The rights of shareholders in relation to their involvement with the management of the company;

4. The rights of shareholders to appoint directors;

5. The voting process to appoint directors or make decisions;

6. How disputes will be resolved;

7. How financial statements can be inspected;

8. Exit terms for shareholders; and

9. How costs and expenses will be paid.

Drafting a Shareholders Agreement from the outset makes sure that you and the other shareholders are on the same page, and potential shareholders know what they’re signing up for.

If you have any questions about your Shareholders Agreement, or would like a quote for us to prepare one for you, please contact the team at Ardent Lawyers on (02) 4444 6808 or contact@ardentlawyers.com.au.