What Should a Shareholder Agreement Include?
A shareholder agreement is created with a view to protect shareholder investment as well are how specified management decisions are made. At Access Law Group, our accredited business lawyers advise our clients to include the following in a shareholder agreement to ensure both parties are protected.
Author:Tom Ellicott
9 May 2022
Director and Board
Matters related to how often a board should meet, the composition of the board and its function are laid out. It determines subjects that require board approval, voting rights as well as the protocol with which new board members are appointed and how they may resign.
Reserved Matters
Matters which require majority approval or approval of particular shareholders are included in this clause. These are the big issues, voting rights, borrowing , funding from shareholders, guarantees and asset allocation are just some of the matters which should be included in a shareholder agreement.
Guarantees and Indemnities
This clause aims to clarify the obligations of shareholders and the company when it comes to releasing or disposing shares. It lists the liabilities and guarantees which apply to a shareholder if they decide to leave the company.
Share Capital and Share Transfers
This clause safeguards the enterprise from directors making changes to ithe issue of new shares to new and current shareholders or converting existing shares without approval. It protects shareholders through various legal mechanisms such as Right of First Refusal, Tag along Rights, while also imposing an agreed framework to value the shares in the company.
Financing
This section sets out capital commitments and obligations of the shareholder. Debt financing and consequences for defaulting will also be included here.
Events of Default
Matters which are identified as events of default are included in this clause. This would cover default events such as bankruptcy, failure to fulfill obligations and so on. Importantly this gives a trigger for shareholders to protect their rights from bad decisions made by others.
Dispute Resolution
This clause sets out the procedures involved in conflict resolution between shareholders should the need arise.
Non-Solicitation and Non-Competition
This clause includes provisions relating to shareholders soliciting employees, vendors or clients of the company. It also specifies the nature of shareholder relationships with companies that compete with the enterprise.
Deed of Adherence
This clause includes the mechanism by which new shareholders can enter the company. New shareholders will be required to sign a deed of adherence before being issued shares.
Conflict with Articles
This provision states that the shareholder agreement retains primacy over the company constitution in the event of a conflict between the two.
Corporate and Business Lawyers in NSW
At Access Law Group, we understand that each shareholders agreement is specific to a particular company and needs to be designed accordingly. Contact our trusted team of corporate lawyers today for expert assistance on how to draft a robust shareholder agreement.
