Yes, putting a shareholders agreement into place when times are good and when everyone is in agreement is prudent in managing the shareholder relationship. It is too late to try and record verbal agreements and negotiate the terms of the relationship when things have soured and parties have become bitter.

The main purpose of a shareholders agreement is to ensure the shared views of the group are protected in the event of any issues. While the company constitution has the effect of a contract between the shareholders (s40 Corporations Act 2001) they are generally inadequate in providing mechanisms for dispute resolution, shareholder exit and valuation.

As a bare minimum a shareholders agreement should address the following:

  • The structure of decision making amongst shareholders, and what decisions are to be reserved for shareholders and not to be decided by the board of directors;
  • What will happen if there is a deadlock in a decision made by the shareholders, and whether an external advisor will be involved;
  • Will shareholders be required to fund the business by way of equity or loan, will interest be paid on any loan made by a shareholder, and what will happen if one of the shareholders is not able to provide the requested funding;
  • Will the remaining shareholders have the first right to purchase the shares of a shareholder who wants to sell? and
  • Are shareholders required to have life insurance so, in the event of their death, there are funds available to allow the buy-back of the shares of the deceased shareholder?

There are a number of other provisions which you should consider including in a shareholders agreement, and the process of developing the agreement encourages shareholders to work together to address issues which otherwise will not be considered until a dispute occurs, which will be rewarding in the long term.

If you would like to discuss whether you need a shareholders agreement you can contact us on (07) 5444 1022 or email