Q: Shareholders agreements - what are they and do I need one?

A: A shareholders' agreement is an agreement between shareholders in a company by which they agree how the business of the company will be conducted and how the company will be managed.

Where there are more than 2 shareholders, you may decide that certain decisions require unanimous consent of the directors or should be put to the shareholders. This may be contrary to the Corporations Act which provides that the business is run by the directors. Shareholders normally have limited decision making ability and sometimes only on specific issues that require a special majority.

An agreement between the shareholders and the company is needed to document any management issues that differ from the Corporations Act or that are peculiar to the agreed arrangements between the shareholders.

You should consider whether your industry or particular business has its own peculiarities that need to be documented.

Some matters that you may want to consider when entering into a business with someone else are:

• What are you going to do if the business needs more money?
• What happens if one of the shareholders dies unexpectedly?
• What happens if the shareholders have a falling out or if one leaves and sets up in competition to the company?
• What happens if you see an opportunity to expand the business but the other shareholders don't want to or can't afford to?

For assistance please contact:

• Jim Main
• Brendan Cockerill