Shareholders’ agreement

The number of people who go into business with partners and do not have a shareholders’ agreement is significant. Many think they don’t need one because their partner is a family member or a mate. Wrong!

A shareholders’ agreement is vital where there are two or more business partners involved. The agreement can deal with a wide range of matters that may arise during the life of the business.

Typical Provisions

A shareholders’ agreement typically covers the following:

  • Type of business undertaken and future direction
  • Board and management team, including appointment process
  • Remuneration and other benefits of board members and senior managers
  • Dividend policies for distribution or retention of profits
  • Capital and asset contributions of each shareholder
  • Voting rights of shareholders and directors
  • Major decisions requiring voting and voting rights, including resolution of deadlocks
  • Banking, accounting and auditing arrangements
  • Shareholder warranties
  • Confidentiality
  • Restraint of trade
  • Dispute resolution mechanism
  • Exiting the business, including death and disablement
  • Valuation of shares in the event of a business sale
  • Termination of the agreement

This list is not exhaustive and should be used as a guide only. As a general rule, any issue considered important by any individual partner should be included in the shareholders’ agreement or should be able to be dealt with through one of its provisions in the agreement.

Preparing the Agreement

It is important that the agreement is prepared to suit the particular circumstances of the business and the business partners. A broader perspective from an external business professional, as well as legal advice, can be particularly useful in the process of preparing the agreement.

Maintaining the Agreement

Another important aspect that is often forgotten is the ensure the shareholders’ agreement is reviewed regularly (say annually) and reflects the current circumstances of the partners. A mechanism therefore should also be put in place to ensure that this happens.

Copyright © Partners-in-Business Institute