Guide to a Shareholders Agreement

Scope of Package

A shareholders agreement is between the shareholders of the company concerning the operation of the company (e.g. where would shareholder approval be required for certain company actions, non-compete and non-solicitation restrictions) and dealing with their shares in the company (e.g. pre-emptive rights for issue and transfer of shares, drag-along, tag-along, automatic exit of a shareholder (involuntary transfer), confidentiality and dispute resolution by mediation / arbitration.

In our shareholders agreement, the company itself will also be a party to the shareholders agreement.

What is outside of the Scope?

Our shareholders agreement is not designed to be applied for public or listed companies, only for proprietary small companies and only for Australian registered companies, not for any foreign companies registered in Australia and not for Australian subsidiaries owned by a foreign company and not for any company that is a subsidiary or part of a larger corporate group with other controlling / ownership interests outside of the company itself that will be the subject of the shareholders agreement.

Our shareholders agreement is not designed for use if the company is acting as trustee of a trust (you may wish to consider our unitholders’ agreement documentation product for a unit trust).

Although the shareholders agreement is generally taken to have precedence over the terms of the company’s constitution to the extent of any inconsistency, we would expect to only see provisions affecting directors in the company constitution to override any replaceable rules in the Corporations Act 2001 if the parties required that (e.g. director appointment, removal and voting, appointment of chair of the board and chair of shareholders).

Director provisions in the shareholders agreement would generally be limited to which percentage shareholding a shareholder requires to be able to appoint a representative director, which you may request for a quote for this clause at an additional fee but which is not offered in our shareholders agreement as standard due to the directors of the company already having been appointed to remain for the short-mid term after the parties enter into the shareholders agreement – you may request this in the special instructions section above.

Similarly if the parties require provisions relating to company budgets and business plans please request this in the special instructions section above.

You may request for us to consider to add other clauses of your choosing to your shareholders agreement for a tailoring cost to be quoted and agreed on before we prepare your documentation. Some examples of requested tailored clauses that we have not been able to insert into the shareholders agreement include:

1. Director employment termination conditions
2. Profit distribution /sharing calculations –
3. Tailored special share rights
4. Director voting, appointment of chair of the board and chair of shareholders and changes to director replaceable rules

Please contact us should you require further clarification on the above points.

Check the number of current shareholders

The shareholders agreement includes a deed of accession and it is expected that the parties would require any new shareholder of the company to accede to be bound by the shareholders agreement upon them acquiring their shares, otherwise the shareholders agreement would be of diminished effectiveness applying to original shareholders but not to new shareholders. We are not engaged to assist the parties to monitor that all new shareholders admitted to the company properly accede to the shareholders agreement.

The shareholders agreement can be varied by the unanimous agreement of the shareholders. However our shareholders agreement is not designed to be implemented if the shareholders of the company already have a shareholders agreement in place.

Our shareholders agreement is also not designed to be implemented by a sole shareholder company for new shareholders to then accede to the shareholders agreement – it is only designed to be implemented once all the original shareholders and original directors of the company into the short-mid term future have been appointed and those shareholders and the company can all execute the shareholders agreement.

Review other company agreements in place and constitution

If the company is to have a buy-sell agreement, the terms and share transfer mechanisms of the buy-sell agreement would generally take precedence over those of the shareholders agreement due to the sudden and involuntary nature of triggering a buy-sell agreement share transfer versus the procedural-based nature of share transfers to be approved under a shareholders agreement. But we are not engaged to review any buy-sell agreement for the company to confirm if it contains a clause that its provisions will take precedence over the shareholders agreement and the company’s constitution.

The shareholders agreement will contain a clause that its provisions will take precedence over the provisions of the company’s constitution to the extent of any inconsistency. We are not engaged to review the terms of the company’s constitution. If you or the parties have any reason for concern that an important term of the company’s constitution could be overridden by inconsistency with a term of the shareholders agreement, you may contact us to discuss before placing your order.