When and why a shareholders agreement? Good question, Stick around and I'll
tell you. Hi everyone, Simon here from The Contract
Company -Contracts that's what we do, all-day, everyday and sometimes overnight, lucky us'
Right, when and why do you need a shareholders agreement? Well the
when, when do you need one I would say anytime you are going into business with
another person. Potentially even if they're family you should have a
shareholders agreement. Why? Well, let's get into it. So a company issue shares,
the owner of the shares are called shareholders. The issue is there's no
contract that governs the relationship between those shareholders of the shares.
And so, what you want to do, is you want to have a contract between the holders
of the shares that govern a whole lot of things about you know, how much you have
to pay for the shares? When you can sell the shares if there's any restraints? All
that sort of stuff. And so, the only way to do that is to have a shareholders
agreement that all current shareholders sign up to. And when a new shareholder
comes on board they sign a deed of a session which basically is a deed saying
they agree also to be bound by the shareholders agreement. Does that make
sense. I hope so, so when a company's formed if
you go and buy a company online usually it'll come with a constitution.
Now the Constitution is just the generic document that talks about how the actual
company will be governed. Right so it doesn't have many specific clauses to
deal with you know, what happens with shareholders, how they sell shares and
like sort of stuff, it been usually pretty generic that's constitutions. There
are also replaceable rules in the Corporations Act, which can help, but once
again they're also pretty generic. So the best thing you can do is have a
shareholders agreement that governs that relationship between all the
shareholders. And then at least you or you and the other shareholders can agree
exactly what needs to be in that document. Hope that makes sense. So what
should be in there there's a whole lot of things you can have in there. Things
like- How long does it go for? there's a lasting perpetuity or not? How much are
people contributing for their shares, is that equal? What is the process when you
want to sell your shares? What is the process for having board
meetings? or What is the process for electing a CEO? I think for me the most
important one is, How you get out of a shareholders agreement in terms of okay
What's the process for selling your shares? Who do you have to offer them to?
What is the offer price is that calculated on some sort of valuation,
that's determined by an independent third party? Or have you pre-agreed
evaluation if you sell at certain points in time? You get other things in there
like restraints, so someone sells their shares and someone else in the company
one of the remaining shareholders buys their shares, then they stopped. Is that
person who sells are they stopped from you know buying shares or starting up a
competing business for a set period of time in a set area? You have all those
sorts of things in the shareholder's agreement. I probably missed out a lot in
fact I know this missed out a lot. I've got a whole lot of other things that can
be in a shareholders agreement. Yes but one of the other key ones is a
dispute resolution course. So what happens in the event of dispute? So if
one party, one shareholder has an issue the other shareholders, how do you
resolve all those sorts of things? So you can see that they're quite
important documents and the rubber really hits the road with the
shareholders agreement. I'll tell you when is when one person or two of the
shareholders want to leave, that's when you really will hope you've got a
shareholders agreement. Because that's when the disputes will arise because the
disputes will be, well how do I get out? What do I have to do to get out? Who has
the opportunity to buy my shares? Do I have to offer the shares to the
remaining shareholders or can I sell my shares to a third party? and then, What
price that has to be paid? What's the price and When is the amount payable? See,
what I mean it gets quite complicated. So that's when so when should you have a
shareholders agreement. I think whenever you're going into business with someone
else in a company it's wise to have one. Why should you have one? Well, because of
all those reasons I listed. Because you can specify the exact commercial terms
of the arrangement and govern exactly how it's all going to work. Then that
hopefully avoids heartache and dispute in the future. So that's the when and why,
as to why you should have a shareholders agreement. I hope that helps any
questions simon@contractcompany.com.au
or 1-800-355-455
Thanks very much!