Shareholders' Agreement is necessary for
any private limited liability company, particularly when it is
not a family owned company, as not all aspects governing the
relationship between shareholders are explicit in the
Corporations Act 2001 or implied by law.
These days a shareholders' agreement is
not uncommon. A Shareholders' Agreement is important,
particularly in some of the following situations:
-
varying classes of shares being
issued in a company with different rights attached to them,
for example, whether certain classes have voting rights and
how a dividend is distributed to certain classes
-
what constitutes a quorum at
shareholders meeting for different classes of shares when
certain decisions can be voted upon by a particular class of
shareholders
-
voting rights in respect of certain
types of decisions so that there is no oppression of the
minority or where the minority cannot hold the
majority to ransom, for example, if the company wishes
to list on the stock exchange
-
resolving a deadlock where the voting
is split 50%-50%, particularly when you have only two
shareholders holding equal shares
-
dividend policy particularly when
there is spare profit available for distribution but the
majority decides against it
-
enunciating the policy for issuing
any new shares, bonus shares or options for example to
non-existing shareholders, particularly to attract senior
management to the company
-
which class of shareholders and how
many shareholders will also be officeholders of the company
and resignation of officeholders if they are no longer
shareholders
-
where shareholders are also
officeholders and involved with day-to-day management of the
company at the exclusion of other shareholders, who would
chair the meeting and what would be the quorum and what
decisions have to be made by shareholders and not the
officeholders
-
whether any shareholder will be
employed by the company and 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 or has to exit the company, for example upon
termination of employment by the company, death, bankruptcy
or for reasons of mental incapacity or when the shareholder
just wants to sell out
-
whether the shares should be bought
by the company or first offered to other shareholders before
being sold to any outsiders
-
whether the parcel of shares being
sold should be purchased as a whole or can it be split up,
particularly where the company is not purchasing and other
shareholders do not want to take the whole parcel
-
formula for share valuation or how
will the share be valued at any particular time as these
shares are not listed on the stock exchange and the company
should not be made to bear the cost of valuation every time
a shareholder departs
-
whether the company would like to
have a keyman policy so that it is able to purchase the
shares 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
-
loans by the company to shareholders
or 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
It is therefore imperative that such an
agreement is in place on commencing business.
