Search

What should a shareholders agreement include?

The key elements you need in a shareholder agreement are:

  • Director appointments: How and when directors are appointed to the company and how and when they can be removed.

  • How shares are paid for and issued: Shares can be paid for through paying money, sharing their IP or providing services ('sweat equity'),

  • How the company is managed: The agreement should set out the types of decisions the director(s) can make on their own, which ones need to go to a vote, the voting procedures and whether they need a majority approval (50%), special majority (75%) or absolute majority (100%).

  • Shareholder obligations: Where the shareholders are expected to provide services or IP for their shares, the conditions and requirement should be spelt out clearly.

  • Shareholder rights: The shareholders are the owners of the company based on their percentage of ownership and share class. Different share classes have different rights. Examples of shareholder rights can include voting rights, participation in key company decisions such as appointment of directors and CEO, payment of dividends, a meetings, information access rights such as management reports and the company's financials.

  • Share transfers: The agreement should set out when and how are shares sold. It should set out whether the shareholders can force another shareholder to sell their shares. These clauses are known as "drag along" and "tag along" rights.

  • Disputes: The agreement should set out what happens if there is a dispute. This can relate to share sales, voting rights and dispute resolution processes.

  • Exits: The agreement should set out an exit strategy. This makes people's rights clear from the outset. Examples of exits include buy outs of shares, listing the company for sale or the shares on the stock exchange. The agreement should set out both voluntary and forced sales of shares.


Should you have any questions, please do not hesitate to contact me on carolinem@legalenablers.com or (03) 8691 3128. We offer free initial consultations.

Kind regards,

Caroline Mense Principal Lawyer at Legal Enablers


Disclaimer: This article is generalist in nature. Seek legal advice tailored to your needs before acting- contact us :)



 
Would you like to know more? We'd be delighted to chat with you.
 
Be in touch
Call: (03) 8691 3128
Email: hello@legalenablers.com
Level 14, 330 Collins Street Melbourne VIC 3000
 

* Quality legal advice

* Responsive time frames

* Practical solutions for your business