A shareholders agreement is an agreement made between shareholders to minimise potential disagreement in the operation of a company. Such agreements are relevant to major shareholders in a company, and may address items agreed between the shareholders, such as the aims and objectives of each shareholder for the company; appointment to the board of directors; calculation of the value of shares on sale between the parties, in case of dispute. Obtaining proper legal advice from a Commercial Lawyer may be greatly beneficial if you are a shareholder to such an agreement or are involved in management of a company which has a shareholders agreement.
If the shareholders control the company, they may agree upon matters for inclusion in the company’s constitution. This item might include the particular voting rights of shareholders; establishing pre-emptive rights of a party to buy the shares of the other party; and the timing for repaying a seller's loan account with the company on transfer of its shares. In advising a purchaser about a shareholders agreement, the rights of any minority must be kept in mind and those important provisions of the Corporations Act that deal with associates and, in the case of public companies, "relevant interested parties”. Professional legal advice in from a Commercial Lawyer may be of great assistance in this regard.
In strict legal theory, the relationships amongst the shareholders and those between the shareholders and the company are regulated by the constitutional documents of the company. However, where there are a relatively small number of shareholders it is quite common in practice for the shareholders to supplement the constitutional document. There are a number of reasons why the shareholders may wish to supplement (or supersede) the constitutional documents of the company in this way. Firstly is the matter of confidentiality, as whilst company's constitutional documents are normally usually publicly available, a shareholders agreement is private contract and can remain confidential between the parties. Also contractual arrangements are generally cheaper and less formal to form, administer, revise or terminate- this can minimize conflict or allow speedy resolution as the rights and obligations are clearly set out. Also the shareholders might wish to provide for disputes to be resolved by arbitration, or in the courts of a foreign country (meaning a country other than the country in which the company is incorporated). In some countries, corporate law does not permit such dispute resolution clauses to be included in the constitutional documents.
In addition there is greater flexibility offered in a shareholders agreement. The shareholders may anticipate that the company's business requires regular changes to their arrangements, and it may be inconvenient and costly repeatedly amend the corporate constitution. Furthermore, corporate law in the relevant country may not provide sufficient protection for minority shareholders, who may seek to better protect their position by using a shareholders agreement. Also, agreements provide a mechanism for removing minority shareholders which preserve the company as a going concern. Sound legal advice from a skilled Commercial Lawyer may be advantageous to ensure that any shareholder agreement is properly drafted.
If you would like further information or wish to discuss your partnership matter with us please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au.
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