One of the most common ways to operate a business is through a proprietary limited company. They are typically companies limited by shares, which in theory means that they are founded by each member contributing (or promising to contribute when called upon) a certain amount of money as share capital. As shareholders (as a majority) have various powers in making decisions with respect to the company, usually all “business partners” of the business are shareholders of that company.
A proprietary limited company will usually have a company constitution (It may be called the Memorandum and Articles of Association if the company was incorporated prior to the Corporations Act taking effect) which will amongst other matters deal with shareholders’ rights.
For example a company constitution will usually specify voting rights of each type of share, and sometimes the process to follow when transferring shares. However, as the constitution will be specifying various other matters such as director’s powers and process of holding general meetings, it usually does not go into too much detail on the relationships between shareholders. Therefore it may be prudent for the shareholders of your company to document some of the agreements between the parties, in a shareholder’s agreement.
Some of the typical subject matters dealt by a shareholder’s agreement are:
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Detail each shareholder’s roles, responsibilities, remuneration, and develop dividend policies (for example, all dividends used to pay off mortgage for first 10 years)
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Ensuring that when a business partner wishes to exit the business by selling their shares, it is first offered to the remaining parties (or provide other exit strategies);
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Restrictive covenants on shareholders when they exit the business;
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Provide a dispute resolution mechanism;
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Deal with death of a shareholder (who may also be a director)
Prime Lawyers’ commercial team can assist you in drafting a shareholder’s agreement, or dealing with any disputes between shareholders. If you require advice in relation to a shareholders issue, call us now on (02) 9521 2222 and speak with one of our commercial lawyers. You can also send your enquiry online now and we will call you shortly.