12 February 2024
Written by Vince Pignalosa
What is a Shareholder Agreement?
A shareholder agreement is a type of contract that defines the relationship between the shareholders of a company and how the company will operate.
Whereas a company’s constitution is a contract between the company and its shareholder and directors.
Why are Shareholder Agreements Important?
A shareholder agreement is important as it protects the interests of the shareholders and the company and reduces the risk of disputes or confusion. It allows the shareholders and directors of the company to customise the governance and operation of the company according to the needs of the shareholders.
A shareholder agreement generally covers more specific matters that would not be addressed in a company constitution, such as dispute resolution, exit strategies for shareholders or even how shares are to be valued.
A shareholder agreement can be drafted to either override or supplement a company’s constitution, so long that it does not conflict with any requirements set out in the Corporations Act 2001 (Cth). Whereas a company’s constitution is a ‘public’ document and is lodged with the Australian Securities & Investments Commission (ASIC), a shareholder’s agreement is a private document between the shareholders of the company and does not need to be lodged or registered.
A benefit of a shareholder’s agreement is that it can be easier to amend than a company’s constitution as the shareholders can agree to the process and requirements to amending the agreement. However, a company’s constitution will generally require a special resolution of at least 75% of voting shareholders.
What Should you Include in your Shareholder Agreement?
What to include in your shareholder agreement will be dependent on a host of factors and includes but is not limited to considerations about the nature of the company’s business, the sophistication of the shareholders and directors, the nature of the relationship between the shareholders and the size of the company’s business.
Some key issues that all shareholder agreements should consider are:
What to do next?
A well drafted shareholders agreement will help outline shareholder interests and rights in relation to the running of the company and will in many instances help prevent or resolve conflicts, while facilitating the growth of the business.
For more information and guidance on drafting a shareholder agreement, please do not hesitate to reach out to one of our commercial lawyers.