Shareholders’ Agreements

One of the most common ways to operate a business is through a proprietary limited company. Proprietary limited companies are typically companies limited by shares, which means that they are founded by each member contributing (or promising to contribute when called upon) a certain amount of money as share capital. As shareholders (as a majority) have various powers in making decisions with respect to the company, usually all “business partners” of the business are shareholders of that company.

It is common for proprietary limited companies to adopt a company constitution (the constitution may be called the Memorandum and Articles of Association if the company was incorporated prior to the Corporations Act 2001 taking effect) which will amongst other matters, deal with shareholders’ rights.

Although the company constitution will usually specify voting rights of each type of share, and the process to follow when transferring shares, the constitution may focus on matters other than the relationship between shareholders. In these circumstances it may be prudent for the shareholders to document some of the agreements between the parties, in a shareholder’s agreement, which will avoid the complexity of amending the company’s constitution.

Some of the typical subject matters dealt by a shareholder’s agreement are:

• Detail each shareholder’s roles, responsibilities, remuneration, and develop dividend policies (for example, all dividends used to pay off mortgage for first 10 years);

• Ensuring that when a business partner wishes to exit the business by selling their shares, it is first offered to the remaining parties (or provide other exit strategies);

• Restrictive covenants on shareholders when they exit the business;

• Provide a dispute resolution mechanism;

• Deal with death of a shareholder (who may also be a director)

Prime Lawyers’ business lawyers can assist you in drafting a shareholder’s agreement, or dealing with any disputes between shareholders. If you require advice in relation to shareholders, or agreements between them, then get in contact with your local Prime Lawyers office to see what we can do for you.

We have business lawyers located at Sydney, Parramatta, Chatswood, Sutherland and Wollongong.