What is a Shareholder’s Agreement?

A shareholder’s agreement is essentially a corporate pre-nuptial agreement. It sets out the rights and obligations of shareholders or members in their ownership of a company. It is not compulsory but it is prudent to have one before you start a company together with another person in order to avoid disputes which could cost you tens of thousands of dollars or more.

Common Clauses

At minimum it should contain clauses regarding what will happen if one or more shareholders leave the business. These include share buyback, restraint of trade, dispute resolution process and tag along and drag along rights.

Review your SHA Regularly

Many Shareholder’s Agreements, drafted between the owners in the initial excitement of the start of a new venture, lie at the bottom of the draw gathering dust, while the business grows and develops around it. Typically, most businesses progress differently to how the owners originally envisaged and the Shareholder’s Agreement is only ever dusted off in the event of a dispute.

However, if a business is expanding rapidly or economic conditions change, there may be provisions in the Shareholder’s Agreement which will ultimately become a hurdle for the future growth of the business, its eventual sale or even its very survival.

For example, while a requirement for unanimous agreement between all the shareholders to raise capital may seem logical and sensible at the start, 10 years down the track, now with a number of loyal employees also owning small parcels of shares in the company, such a provision could potentially be very disruptive. Especially so if one shareholder becomes disgruntled with their lot.

The same equally applies with Partnership Agreements.

It is therefore prudent to revisit your Shareholder’s Agreement every few years to ensure that it is still relevant and effective for managing and expanding your business.

We would be happy to review your Shareholder’s Agreement or Partnership Agreement with you to ensure that it provides your business with the best framework for management and growth. If you would like more information on how we can assist you with your matter, do not hesitate to contact us on 9963 9800 or via our contact form.