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Shareholder Agreements - protecting your investments A Shareholder Agreement is a contract that is held between some or all of the shareholders of a company. This agreement is in addition to the company’s constitution and its purpose is to standardise and administer the rights of shareholders as well as to give them some control over the management and operational aspects of the company. The lack of a shareholder agreement can result in various problems for a company. One of the most common situations where the absence of an agreement is felt is that it is almost impossible to force an unhappy shareholder to sell their shares back to the company at a fair and reasonable price. Without a Shareholder Agreement, which is also known as a partner (or investor) buy-out agreement, the unhappy partner can launch a lawsuit seeking greater return for the sale of his shares, and this action has the potential to be detrimental to the life of the company. By providing a regulated exit strategy, the Shareholder Agreement dictates the value of the company’s stock and shares, therefore eliminating any conflict that may be generated by differing opinions between the exiting investor and the remaining shareholders when a buy-out is taking place. The Agreement not only specifies what price shares will be sold to shareholders at, but can also include provisions on the control of sale of shares to outside parties and assists in ensuring that the shareholders maintain control of the company in the long term. This can be relevant in situations such as a shareholder getting divorced or passing away as provisions in the contract allow the remaining shareholders to control whether or not the co-ownership passes to individuals who may have no previous affiliation with, or vested interest in, the company. In most cases, a Shareholder Agreement includes the provision that in the event of their death, each shareholder agrees their executor is legally required to sell the shares back to the company. If you are a shareholder in a company, particularly if you own a sizable portion of shares, it is strongly recommended that you insist on the drafting of a Shareholder Agreement to ensure the security and safety of your investment. The Quinn Group are able to carry out the drafting and execution of Shareholder Agreements. For more information contact us on 1300 QUINNS or click here to submit an online enquiry.
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Disclaimer: The contents of this document titled “The Quintessential Brief” (the ‘Material’) are provided as general information only. It is not intended to be given as advice and should not be relied upon as such. If you are concerned about any issue raised by the Material then you should seek your own professional advice. No warranty is given in relation to the accuracy, currency or completeness of the Material. No reader should act on the basis of any matter contained in this publication without first obtaining specific professional advice. Where applicable, liability is limited by the NSW Solicitors Scheme under the Professional Standards Act 1994 (NSW), and other relevant state legislation. The Quinn Group respects your privacy. Should you not wish to receive this newsletter in the future please contact us on 1300 784 667.