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A shareholders agreement is a binding contract between the shareholders of a company which outlines their key rights and obligations. While it is not a requirement, it is a good idea to set one up at the beginning of a new business venture wherever there are two or more shareholders. Having a shareholders agreement will allow for the smooth function of your business by preventing disputes.
In the early stages of a business, you may not have any conflict or foresee any future issues. However, conflict in business is common and a shareholders agreement will cover issues you may not have contemplated yet.
A typical shareholders agreement will cover your business structure, management arrangements and the process around appointing and removing directors. It will also cover buy/sell arrangements so there is a process to follow if someone wants to sell their shares. Shareholder agreements can also cover the requirements for making certain decisions and a dispute resolution processes to follow if any disputes arise. Additionally, they will cover dividend payments and a process to follow if there is a death or total disablement of a shareholder. These are some of the main issues that are covered in a shareholders agreement however it is good to know that a shareholder agreement will be tailored specifically to your business.
A shareholders agreement may also save you a lot of money. It is more cost effective to pay the price of setting up a shareholders agreement than having to pay the costs of any disputes that may arise down the line.
Shareholder agreements are also a sign of stability. This may be particularly helpful when dealing with third parties, for example if your company is trying to obtain credit form a bank. If you are thinking of bringing in another shareholder they may also request to see your shareholders agreement.
If you are interested in setting up a shareholders agreement for your business, please feel free to get in contact with one of our experienced commercial lawyers at Frank Law on (02) 9688 6023 or via frank@franklaw.com.au.
