Shareholder / Unitholder Agreements

If you are starting or running a business with any third party a shareholder agreement is likely to be the single most important contract you will enter into.
The main benefits from a property legally drafted shareholders agreement is that all relevant parties are required to consider and plan how the business relationship is to progress. This often prevents costly disputes which can cost many thousands if they end up in the courts and/or provide a more efficient dispute resolution process if an argument does arise.

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A shareholder agreement governs the plans, rights and obligations of those entering into the business and often include complex legal provisions covering:

  1. How disputes are resolved;
  2. What are the responsibilities of each party in the arrangement;
  3. Are the shareholders required to provide financing / labour / equity and on what terms;
  4. What happens if one of the parties wants to exit the business;
  5. Are shares to be offered to current shareholders before being sold to third parties;
  6. How many directors are to be appointed;
  7. How are decisions to be made and are decisions to be by majority / unanimous;
  8. Are parties to be restrained from competing in similar businesses;
  9. Number of required meetings per year;
  10. Financial reporting obligations;
  11. “Tag-along” and “Drag-along” provisions to protect minority shareholders and ensure sales are not held up for majority shareholders; and
  12. Consequences of directors or shareholders becoming insolvent and/or incapacitated.

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A shareholder agreement is a legal document that outlines the rights and responsibilities of shareholders in a company. It is a crucial document for any business operating in Australia, as it helps to protect the interests of all shareholders and ensure the smooth running of the company. In this article, we will be discussing the need for a shareholder agreement in Australia, why it is important and how it can benefit your business.

One of the main reasons for having a shareholder agreement in place is to establish clear guidelines for decision-making and management within the company. This includes outlining the roles and responsibilities of each shareholder, as well as establishing procedures for voting and making important business decisions. It also establishes the percentage of ownership each shareholder holds, which can be helpful in case of future disputes.

Another important aspect of a shareholder agreement is that it helps to prevent conflicts and disputes between shareholders. This is done by clearly outlining the rights and obligations of each shareholder, as well as establishing procedures for resolving disputes in the event that they do arise. By having a shareholders agreement in place, it can prevent the potential for legal action which can be costly for the company and its shareholders.

Additionally, a shareholder agreement can also provide protection for minority shareholders. This is particularly important in Australia, as the Corporations Act 2001 places certain obligations on companies to act in the best interests of shareholders, and to not discriminate against minority shareholders. The shareholder agreement can establish the rights of minority shareholders, such as the right to vote on important matters, and ensures that they are not outvoted by the majority shareholders.

A shareholder agreement also provides a framework for the transfer of shares, which can be particularly important in the event of the death or bankruptcy of a shareholder. It can also establish what happens in case of a change of control of the company, such as a buyout or merger. This can be beneficial for all shareholders, as it can help to ensure that the value of their shares is protected.

It is important to note that a shareholders agreement is not mandatory in Australia, but it is highly recommended to have one. It is essential for companies with multiple shareholders, especially those with diverse interests, to have a shareholders agreement in place. It helps to avoid confusion and misunderstandings and ensures that everyone is on the same page.

In conclusion, a shareholder agreement is a vital document for any company operating in Australia. It helps to establish clear guidelines for decision-making and management, prevent conflicts and disputes between shareholders, and provide protection for minority shareholders. It also provides a framework for the transfer of shares and can help to protect the value of shares in the event of a change of control. It is highly recommended for companies with multiple shareholders to have a shareholder agreement in place. It is a small investment that can save the company and its shareholders from potential legal disputes and financial losses in the future.

Meet Nick

Nick provides legal and tax solutions to start-up/small businesses and individuals. Quite separate to law, Nick understandsbusiness and has hands-on experience launching and running start-up organisations, including some of Australia’s first group-purchasing and consumer power platforms.

Nick is on the Board of the Crowd Funding Institute of Australia and is a Founder & Director of successful Australian crowdfunding plaform