What should be in a shareholders agreement? Right, stick around and I'll
tell you, the key clauses that should be in there.
Hi everyone, Simon here, from The Contract Company
-Contracts it's what we do, all day, everyday and sometimes overnight, lucky us'
What should be in a shareholders agreement? So, the easiest way I think
about this which hopefully helps you is if you think about start, middle or
ongoing and end, right 3 steps -start, middle, ongoing, and end. So, at the start
you need in the shareholders agreement, to specify things like who are the
shareholders, in what capacity are they owning shares i.e. are they earning
shares in their own name, or other owning shares as the trustee of a trust, or are
they owning shares in another company, sorry in their company name so they may
have their own company is their company buying shares in this company.
Then you've got other things at the start phase, things like what's the
contribution, how much are people putting in, is it a gift, is it loan, what and
then what allocation of shares are they going to get for the money they're
contributing, and then you know, what type of shares, are they all A class shares
and they B class shares, because different shares in most companies have
different rights attaching to them, even though 90% of all companies you just
basically give the A class shares the standard shares. So start, who is it, how many
shares they're getting, and what for so that's really that that's what you need
in the shareholders agreement at the very at the start of it. Then in
the middle phase, while the actual parties are all working and running the
company, you need things like, How are meetings to be governed? How often are
meetings to occur? How do the people appoint a CEO? or is there going to be a
CEO? How can decisions be made about money?
For instance, you might want to say in your shareholder's agreement if there's
three of you, you might say that unanimous consent is required if the
company wants to make a decision, that is over or has an impact that's over $5,000
or if that company wants to sign an agreement say with our service provider
then and that contracts worth more than $5,000 that all the parties have to
consent so you can put in it clauses like that.
That give all shareholders some comfort that the company's just not going to
enter into contracts and pay our money with the parties without all of them
agreeing. So there's a whole lot of other clauses in there as well, things like who
controls the company bank account, is there going to be a company accountant?
So all the things that you really need to run the business. So we've talked
about at the start we've talked about their what needs to be in there when you
actually are running and operating the business and then the
this is the most crucial part the end phase. So what other clauses do you need in a
shareholders agreement at the end of things and what I mean the end what I
mean by that is when one or more shareholders want to leave, and this is
where the rubber hits the road this is important because that's where most
disputes arise is when one person wants to get out. So then, the things you need
to think about it the ending phase things like do they have to, sorry do
they have to do the outgoing share, how to have to offer his shares to one of
the remaining shareholders at first, or can they sell them to a third party, do
the remaining shareholders get to consent to who that incoming party is,
what is the share price or valuation? So How do you determine what the share
price is going to be for the person who's selling their shares? Is that
valuation or price calculation methodology, methodology if I can get
my words out, is that methodology set out in the shareholder's agreement? What the
payment process? Is them into one lump sum? Can payments be made over you know
multiple months, or you know twice a year? So there's a whole lot of stuff that
goes into a shareholders agreement terms of start middle and then the end. And as
I said I think the having that ending phase is captured accurately in the
shareholders agreement is the most important one, because that's usually
where the disputes arise. When someone wants to get out and they want to get
their cash and then it's well, "How much cash do I get? When do I get it? Who do I
get it from, because who can I sell to? and all those sorts of things.
So there's plenty of issues to think about with shareholders agreement. They're complex
documents well they can be complex documents some of them are pretty easy
depending you know the agreement of the
shareholders agreed to make between themselves, other times they can be very
complex. Anyway that's just our view as to what we think should be in a
shareholders agreement. But it's a good way to think about it you need clauses
that cover the start, the middle or ongoing operation of the business and
the ending phase for a shareholder when they want to leave. I hope that helps any
questions simon@contractcompany.com.au
or 1-800-355-455
thanks very much