Do I need a Shareholders Agreement?

If you have a company with multiple shareholders, it is well worth establishing a Shareholders Agreement to provide guidance to the shareholders when issues arise. For example, do you know what should happen if one shareholder wants to sell their shares? Maybe they no longer want to work in the business? Or maybe there is a dispute that needs to be resolved. A Shareholders Agreement will provide guidance and direction for the times when issues such as these arise.

A company itself is governed by its constitution and the replaceable rules in the Corporations Act 2001 (Cth). However, the replaceable rules are not really tailored to small and medium companies, and a company’s constitution is not necessarily the best place to deal with issues between shareholders. For this, you need a Shareholders Agreement.

A Shareholders Agreement can deal with issues such as:

1. Whether shareholders need to be actively engaged in the company, either as officeholders or as employees;
2. What happens if a shareholder dies or becomes incapacitated;
3. The process for authorizing the sale of shares, and bringing new people into the company;
4. What happens if there is a dispute between shareholders;
5. Providing a process for buying out a shareholder in the event that there is an irreconcilable difference between shareholders; and
6. The requirement for shareholders to take out death and permanent injury insurance which can help to find a buyout if a shareholder can no longer remain active in the company.

A Shareholders Agreement protects your interests as a shareholder, in the event a difficulty arises. Practically, it is often a more important document than the company’s constitution. The time to establish a Shareholders Agreement is now, before any issues arise.

We provide a basic Shareholders Agreement for companies with two shareholders for free. Our LegalRocket lawyers can also tailor a Shareholders Agreement to your specific needs, should you have more than two shareholders or you have unique requirements not addressed in the basic document. If you would like advice or assistance with establishing a Shareholders Agreement, please give us a call on 1300 615 705.

The crew at LegalRocket.