Why every business needs a Shareholder Agreement


Every business needs a Shareholder Agreement to govern the conduct, rights and responsibilities of shareholders and directors of a company. The best time to prepare one is before you need one!

This agreement is akin to a pre-nuptial agreement for your business. If all goes well, you’ll never need to take it out of the drawer, however if matters turn south, it’s the first document you’ll turn to.

In the context of a family-owned businesses, Shareholder Agreements (or unit holder agreements, as applicable) can also provide certainty around issues in relation to succession of family members to the board, managing family decision making and participation at the shareholder level and ensuring mechanisms are in place to preserve the business, its assets, and the integrity of the decision-making process amongst family members – whether they are active in the business or not.

When thinking about preparing agreements of this nature, there are many issues to consider, including:

Directors and Shareholders

  • How directors are appointed and removed.
  • How decisions are made by the directors and shareholders.
  • Quorum and voting requirements of directors and shareholders.
  • The basis on which profits are paid to the shareholders, who decides and how much gets paid out
  • The terms on which someone may exit the company
  • What happens when a director or shareholder dies or becomes ill

Transfer of Shares

  • Whether shares can be sold, to whom and any strings that may be attached
  • How shares are valued on exit
  • Under what circumstances can third parties become shareholders

When seeking advice in relation to the preparation of a Shareholder Agreement, it is vital that it is prepared in the context of your long-term plan or intentions for the business.

An effective Shareholder Agreement is tailored to addresses appropriate governance mechanisms to ensure that the decision making around who oversees, manages, owns and controls your business is made within in the context of what your business and its owners need.

Importantly, your lawyer should work collaboratively with your accountant and tax advisers to make sure your advisory team is on same page and the Shareholder Agreement ultimately protects the business and the financial interests of its owners, as intended.

Having a tailored agreement will give you peace of mind and certainty, not to mention it will  save you considerable time, money and stress negotiating an exit deal with a business partner or family member once it’s time to part ways. A ‘business divorce’ can be just as emotional as a personal one. A Shareholder Agreement will provide commercial clarity to all parties at a time when emotions are running high.

Get in touch to find out how we can help you ensure your business lives happily ever after, notwithstanding a possible break up or other challenges down the track.