Forming a company in Australia requires the lodgement of a form with the Australian Securities and Investments Commission (ASIC). If you are looking to start a company, you also need a number of key operational documents such as a company constitution and shareholders agreement. This article sets out the importance of a shareholders agreement and who should draft your shareholders agreement.
What is a Shareholders Agreement?
A shareholders agreement governs the relationship between shareholders and the directors of a company. It provides distinct advantages over the default set of replaceable rules in the Corporations Act 2001 (Cth), or a standard form company constitution.
A shareholders agreement is more bespoke and specific to your company. In the event of any inconsistency, the shareholders agreement will override the constitution. A well drafted shareholders agreement is usually more helpful than a constitution, so if you have a shareholders agreement, a pro forma constitution is acceptable.
A shareholders agreement sets out details for the issuing of new shares, the conduct of board meetings, the duties of each director and what happens in the event of a dispute. If a shareholder is unsure about how to sell their shares or who they can sell them to, the shareholders agreement should clearly set out this process. The agreement also enables smooth operation of the company, since shareholders and directors are clear on the obligations they owe to the company.
A shareholders agreement is not a legal requirement, but it is important to have one in place if your company has more than one shareholder. Once signed, it will be a binding legal contract between the shareholders and directors.
Who Can Draft My Shareholders Agreement?
A shareholders agreement is one of the most important operational documents of a company. As such, it should be customised for the company and drafted by an experienced commercial lawyer. Where business advisors (such as accountants) offer to draft your shareholders agreement, act with caution and ensure the company’s interests are well protected from a legal perspective.
When drafting a shareholders agreement, consider the following legal issues:
- What are the key issues for shareholder/founders to resolve? What if one wants to leave? How will disputes be resolved?
- Should the shareholder/founders shares be subject to vesting conditions? Over what period and on what terms?
- Many companies require a bespoke shareholders agreement, addressing scenarios such as good leaver/bad leaver
- There is no one-size-fits-all. A small company with two founders requires different provisions compared to a fast-growing company raising several rounds of capital. Depending on your company’s long term goals, you are likely to have specialised legal needs that are not immediately obvious. It is advisable to have an experienced commercial lawyer draft your shareholders agreement as they are familiar with the potential scenarios and legal implications tied to your company’s growth.
- A shareholders agreement is a key legal document that sets out how your company is to be run, the duties of directors and shareholder rights and obligations.
- The legal document assists with the smooth running of a company and ensures that if and when disputes arise, there are clear processes in place to ensure the company’s interests are protected.
- Industry knowledge and experience from a legal advisor will give the company confidence that the shareholders agreement is comprehensive and tailored to fit from a legal perspective.
LegalVision’s commercial lawyers are experienced in drafting shareholders agreements to suit the particular circumstances of founders, investors and owner-operators. We can also advise on business structuring and assist in resolving shareholder disputes. If you would like a quote on drafting a shareholders agreement, contact LegalVision’s commercial lawyers on 1300 544 755.