Shareholders Agreement

Do startups need a shareholders agreement?

Launching a business can be a complicated (but hopefully exciting) process. Once you have laid the foundation for the business, such as registering your company structure and your website, you should consider putting in place a shareholders agreement. It might seem like a problem for the future, however the earlier you put it in place, the less likely it is that you will have conflicts among shareholders without a proper guidance mechanism being in place.

What is a shareholders Agreement?

Working alongside your company constitution, a shareholders agreement provides a foundation for what a shareholder can and can’t do, as well as their rights and obligations. It is a binding legal document that sets out the rights and obligations of the shareholders of a company. It specifies who controls the business, how the business will be managed and various other nitty gritty details.

Even if your business is not intending to raise capital, a shareholders agreement should be implemented as soon as there is more than one shareholder in the business. 

What topics may be included in a shareholders agreement?

  • The management and operation of the business – ie. which decisions will require majority vote?
  • Shareholder rights and obligations
  • Director Appointments
  • Special rights for founders
  • Delegation of rights to management
  • Issuing, selling and transferring shares
  • Dispute resolution
  • Exit strategy

Management of the company

At the initial stages of launching your start-up business, the lines between the management of the company and board and also shareholders are generally quite blurred. However, as your business grows, it is important to consider the roles of each of these parties in both the day to day management and strategic decision of the company (ie. by appointing directors to the board). A shareholder’s right to appoint directors is provided for in the shareholders agreement. The shareholders agreement should also set out other matters which require shareholder approval, and which matters are reserved for the board.

What will happen if there is a future issue of shares?

If the business does eventually issue new shares, the new party will enter into a ‘Deed of Accession’ with the business and all existing shareholders, so that the new party can be bound by the shareholders agreement. The business can simply register the new individual as a shareholder in the company’s register and update its ASIC registration.

So what’s next?

We understand that making time for the legal requirements for start-ups is not always as exciting for business owners as working on your product or packaging, however it’s what we love. That is why we pride ourselves on making this experience as seamless as possible for you.

We are experts in providing support for start-ups, including drafting shareholders agreements. Find out how we can help you today by contacting our team.