This document sets out the basic terms and conditions a practitioner would expect to find in a shareholders’ agreement.

The document should only be used as a guide. It does not take into account the unique circumstances of the company and the shareholders, and it does not include each and every possible term and condition that can be found in a shareholders’ agreement.

Entering into a shareholders’ agreement

The rights and duties of shareholders are governed in Australia by the Corporations Act 2001 (Cth) (Act) and the common law. The Act, the common law, and often the constitutions of companies, provide basic guidance about the relationship of shareholders with each other, and with the company of which they are shareholders.

This means that it is not always necessary for shareholders of a company to enter into a shareholders’ agreement. Nevertheless, it is often wise to do so. In determining whether it is worthwhile to enter into a shareholders’ agreement it is worth considering, amongst other things, whether:

• there is a close correlation between the shareholders, management and directors of the company;
• whether the shareholders will want to influence the way the company is governed as a result of their shareholding in the company or otherwise; or
• the shareholders have a predominantly passive interest in the governance of the company.

In the first two examples, it is a good idea to enter into a shareholders’ agreement. In the third example, entering into a shareholders’ agreement may not be necessary.

Before drafting a shareholders’ agreement

Before drafting a shareholders’ agreement, acquaint yourself with:

• the provisions in the Act relating to shareholders;
• the constitution of the company in question (see LexisNexis precedent company constitution); and
• the Foreign Acquisitions and Takeovers Act 1975 (Cth), if some of the shareholders are not Australian citizens or if they are foreign companies.

Tailoring the shareholders’ agreement

It is important to tailor the shareholders’ agreement to the specific needs of the shareholders and the company in question. You may need to consider:

• what class of shares the respective shareholders will hold and how this affects their rights and obligations as shareholders within the company and to each other;
• if there are a number of minority shareholders in the mix, whether their rights should be greater than rights usually held by minority shareholders; and
• what kind of pre-emptive rights would best suit a specific group of shareholders given their particular interest in the company.

This document has been authored for LexisNexis by Chris Greiner, Consultant, Ryan Lawyers and Elise Margow, Principal Legally Speaking.

This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.