It is both good practice and prudent risk management to prepare and use a shareholders agreement for shareholders in proprietary limited companies. They can operate as a “rule book” for shareholders and also separate their private arrangements from the company constitution.

A shareholders agreement should (subject to applicable legislation):

  • define the rights and obligations of the shareholders between themselves;
  • set out how the shareholders will exercise control in the board;
  • determine a fair way for a shareholder to exit the company;
  • determine how decisions are made; and
  • describe how conflicts and changes of shareholders will be managed.

A shareholders agreement is a binding contract that seeks to regulate the rights and obligations of shareholders in a company. Shareholders agreements are not compulsory, unlike the replaceable rules or a constitution required by the Corporations Act 2001 (Cth) (Corporations Act). However, on incorporation, or on obtaining an investor, members of companies often move to prepare and execute a shareholders agreement to regulate their rights and obligations and various aspects of the company’s management.

If you require assistance in assessing your commercial needs and compiling (or reviewing) a Shareholders Agreement that works for you, contact Rankin Business Lawyers for practical, on-point commercial legal guidance.

Stacey Brennan