“A Shareholders’ Agreement is a contract between the shareholders of a company. Without one, you risk a dispute at some point down the track when each shareholder has a different idea of who can do what, when they can do it, how it is done, and what was agreed at the outset. Like a pre-nuptial agreement- you do not really need one until you need one (at which time it is too late).
Typically a Shareholders’ Agreement is signed at the outset of a business arrangement, but it is never too late – they can be entered into at any time with the agreement of the shareholders. It will usually record (amongst other things):
The nature of the business
- How it will be run
- Decision-making mechanisms
- How many directors there will be and how they are appointed
- The role, rights, and responsibilities each shareholder has
- How capital contributions or financing will be arranged and secured
- Exit strategy – what happens if one shareholder wants to sell (or if some other change or event affects a shareholder)
Are You Compatible With The Other Shareholders?
Perhaps the most important role of a Shareholders’ Agreement is to ensure the parties are on the same page from the outset. If nothing else discussing the agreement at the outset can highlight differences in understanding that may otherwise go unnoticed.
What Are My Shares Worth?
The Companies Act does not prescribe how shares should be valued if one party wants out. Many Shareholders’ Agreements record the agreed process for when one party wants 10 sell their shares, reducing uncertainty and the risk of dispute. This can save a lot of money.
Removing A Shareholder / Director
Your Shareholders’ Agreement might record different circumstances in which a shareholder or director can be removed. For example, if a shareholder or director has breached an essential term of the Shareholders’ Agreement, acted dishonestly or in a way that is detrimental to the business, they can be removed. This can be easier than relying on the provisions of the Companies Act, which can be limited.”
We at Monteck Carter understand how important it is to work with other professionals and we want to thank Murdoch Price for allowing us to share this very informative article with you. Their focus is to provide legal services at a personal level for individual clients and families together with small and medium businesses and some larger businesses. You can contact Murdoch Price on 09 271 5880