Wednesday, July 29, 2015

Shareholders Agreements – the basics explained

Cassandra Townsend, Manager, Precedent Lawyer and Denice Fraser, Marketing Manager

This blog addresses some common questions and interesting points around Shareholders Agreements.

What is the difference between a Shareholders Agreement and Company Constitution?

A Shareholders Agreement supplements the company Constitution. Its specific purpose is to record how the shareholders will operate the company and their relationship with each other. It often covers similar matters to a Constitution, however provides more detail or deal with a range of scenarios not commonly or comprehensively dealt with in the Constitution.

Provisions of the Cleardocs Shareholders Agreement include:
  • adopting and amending business plans;
  • rights of shareholders to appoint board members;
  • decision making by the board and shareholders; and
  • transfer and disposal of shares.

How does a Shareholders Agreement work with a Company Constitution?

To create a Shareholders Agreement, the company requires a Constitution however it does not require an underlying Cleardocs Constitution
. Generally, if there is an inconsistency between the shareholders agreement and the Constitution, the relevant provision of the shareholders agreement will apply. This is dealt with in more detail in our FALQ “Shareholders agreement v Constitution: which takes priority”.

Do I need a Company Constitution and a Shareholders Agreement?

You should seek professional advice whether the Corporations Act and Constitution (if any) adequately provides for the company’s specific circumstances. Maddocks advises Shareholders Agreements are usually implemented when the company’s shareholders are dealing at arms-length.

Why use a Cleardocs Shareholders Agreement?

The Cleardocs Shareholders Agreement:

  • is more comprehensive than most shareholders agreements - our Shareholders Agreement includes options to provide detail on a range of activities and is drafted in a way to allow for all constitutions (not just companies with an underlying Cleardocs Company Constitution);
  • is signed off by top 20 Australian law firm, Maddocks - so you can be assured of its compliance and quality;
  • is better than a buy/sell agreement: A buy/sell agreement is in essence, a buyout agreement. A shareholders agreement can cover these arrangements, in addition to the day-to-day management and control of a company; and
  • creates an opportunity for accountants, financial planners and legal practitioners to work with clients on business succession planning (an emerging area in estate and financial planning) issues.

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