Shareholders’ Agreements

Shareholders’ Agreements are becoming increasingly common for unlisted companies, particularly when it is not a family owned company. The Corporations Act 2001 and the general law cover all aspects of company’s operation, however many provisions are not well suited to small or closely held companies.

Some of the topics a shareholders agreement will cover include:

  • Issuing classes of shares with altered voting rights and dividends
  • Constitution of the board, often including power of veto to some class
  • Identifying certain fundamental issues, which may only be dealt with by specified majority participation
  • Resolving a deadlock
  • Dividend policy
  • Enunciating the policy for issuing any new shares, bonus shares or options to attract senior management or new investment to the company
  • Which shareholders will also be officeholders of the company
  • The terms of employment by the company and resignation from employment if they sell their shares in the company
  • Sale of shares when a shareholder exits voluntarily, or upon termination of employment, death, bankruptcy
  • How such acquisitions will be financed, and shares allocated among existing shareholders
  • Formula for share valuation and who bears the cost of valuation
  • Keyman insurance policy and/or buy sell arrangements upon death of the shareholder
  • Necessary restrictive covenants in respect of departing shareholder so that the shareholder is not able to compete with the company upon departure
  • Whether shareholders will be required to lend money to the company and at what interest rate and on what terms
  • External debt raised by the company, what securities are to be provided and to what extent will the shareholders be required to provide personal security
  • Setting out company policy in respect of terms of trade between a shareholder and the company when a shareholder is contracted to provide goods and services to the company
  • The disputes resolution mechanism if there is a dispute between the shareholders as to the rights of the shareholders or dispute in respect of the company and how the company is being operated.

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