Whether you’re going into business with a friend or investing in an existing business, it’s vital for any company with multiple shareholders to have a Shareholders’ Agreement in place.
A Shareholders’ Agreement is the best way to protect yourself and your business in the event of any disputes between shareholders and other complicated situations such as the death or disablement of a shareholder or the sale of shares.
A Shareholders’ Agreement provides the framework that should, in most instances, provide a resolution to any issues that arise, or at least a process for resolving issues.
Shareholder Agreements are private between the shareholders, so the information contained in the agreement is not available to the general public. This means that Shareholder Agreements are quite different to Company Constitutions, which are available to the general public through the Companies Office Registry and which largely deal with statutory requirements under the Companies Act.
Shareholder Agreements deal with matters such as:
- Who the directors of the company are and who has the right to appoint them
- Who the shareholders of the company are
- The rights and obligations allocated to each share (it is common for there to be different classes of shares, with each class having different rights and obligations)
- Which activities or transactions need the approval of which parties/shareholders
- What happens if a shareholder dies
- What happens if a shareholder becomes totally and permanently disabled
- What happens if a shareholder employee leaves the employment of the company
- What happens if a shareholder wants to sell their shares in the company
- The process for selling shares in the company
- Restraints of trade that apply to directors/shareholders
- What happens in the event of disputes between shareholders
We have been involved in many situations where shareholders have spent months and tens of thousands of dollars attempting to resolve issues, where that time and cost could have been avoided if a Shareholders’ Agreement had been in place.
Similarly, we have been involved in a number of situations where we have worked through Shareholder Agreements with our clients to bring about a satisfactory resolution to problems between shareholders, efficiently and with minimal cost.
Most people enter into business arrangements thinking that they will always be able to work through issues between themselves and their co-shareholders. Unfortunately, that is not always the case, particularly when the personal relationship becomes difficult or if one of the shareholders dies and suddenly the remaining shareholders are finding themselves dealing with the deceased person’s family or representatives.
We recommend and encourage anyone who is planning to become a shareholder in any company to enter into a Shareholders’ Agreement before becoming a shareholder.
We have considerable experience in preparing and advising in respect of Shareholder Agreements and would be very happy to help any current shareholders or anyone in the process of becoming one.
P/ 09 489 9102
Chris joined the firm in 1985 and is our in-house Commercial specialist. His extensive knowledge of Business Structures, Asset Protection and Trading Trusts enables him to protect his clients’ commercial and broader legal interests in a unique way.
As a result of his commercial strengths, many of Chris’ clients seek his advice on all aspects of their affairs, from their Family Estate planning to their Residential Conveyancing and other personal matters. Our clients value his complete understanding of their interrelated affairs.
This article is brief and general in nature. You should not treat this article as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this article. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this article.