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Velocity Legal

Level 43, 80 Collins Street, North Tower, Melbourne VIC 3000

Level 10, 580 George Street, Sydney NSW 2000

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Shareholders Agreements: Protecting Your Business and Its Owners

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In business with others? Bringing in a new co-owner? Get an appropriate contract in place to protect the business and its owners. Otherwise, you may regret gambling on your ability to predict the future.

The future is inherently unpredictable. Businesses evolve. People’s interests, ambitions and circumstances change. Unexpected events occur. The best way of protecting a business against the unexpected is by putting in place a carefully tailored co-ownership agreement which provides a ‘rule book’ to manage difficult and unexpected situations.

Common elements of a co-ownership agreement include:

A co-ownership agreement, or 'business pre-nup’, is a foundation document on which all co-owned business arrangements should be based.

Too often we see disputes between co-owners where the relevant co-ownership agreement is deficient, stock standard (i.e. not tailored to the parties’ unique circumstances), or worse, non-existent. Many of these disputes could have been avoided, or their damage minimised, if the co-owners had implemented a robust co-ownership agreement.

Approach

Our usual approach is to:

  • provide you with a clear and transparent fee quote;
  • get context regarding your business, the co-owners and your objectives;
  • have a workshop meeting with you to explore your preferences in more detail;
  • guide you through our draft co-ownership agreement; and
  • refine the contract until you are comfortable with the terms.

We pride ourselves on adopting a pragmatic and sensitive approach during these discussions. Our wealth of experience enables us to deal with challenging issues in a delicate manner.

The Benefits of a Shareholder Agreement Lawyer

A robust shareholder agreement will safeguard investments, establish guidelines for company management and help prevent conflicts.

In other words, a well-structured shareholder agreement is a necessity for any business. It is not advisable to draft one without legal support. Read More

For example, when constructing an agreement, key issues that shareholders may easily overlook include:

  • Determining share valuation during an exit.
  • Establishing the terms of a dividend policy.
  • Outlining a clear process for resolving disputes among shareholders.

An experienced shareholder agreement lawyer will ensure that all the i's are dotted and the t's are crossed. Companies change, and their long-term strategy may shift. A shareholder agreement anticipates these changes.

Regardless of whether it's for an equal, majority or minority shareholding, a shareholder agreement should maintain clarity and balance in shareholder relationships. More comprehensively, a good shareholder agreement will cover the following:

  • Financial controls, borrowing limits, and access to up-to-date financial information.
  • Rules for issuing new shares, including pre-emption and preference share rights.
  • Director powers and restrictions.
  • Key veto rights for minority shareholders.
  • Exit strategies for shareholders, with 'good leaver' and 'bad leaver' terms and share valuation rules.
  • Drag-along and tag-along rights for business sales.
  • Procedures for handling shares in cases of death, illness, bankruptcy or criminal offences.
  • Dispute resolution mechanisms, such as buyout options for 50:50 shareholders.
  • Clear dividend policies.
  • Restrictive covenants

In summary, a shareholder agreement is not an easy document to compile alone. However, an experienced lawyer for shareholder agreement will assess your business needs. They can draft a shareholder agreement that protects the interests of all parties.

Find an Experienced Lawyer for a Shareholder Agreement

Choose an experienced firm

There is no substitute for expertise. Does the firm specialise in shareholder agreements (and commercial matters, in general)? Are there informative resources on the website?

These, and client reviews, are key indicators of the firms' experience.

Opt for a transparent fee structure

Ensure the legal firm provides a clear and transparent fee structure so you understand the costs involved and can assess whether they align with your budget. It is essential to understand the costs involved at each major stage of the process, with no hidden fees.

Accreditation and Testimonials

Professional accreditations (such as from the Law Society) can provide peace of mind that the lawyers work according to best industry practices. From another perspective, client testimonials validate the service and the outcome of working with the firm.

Velocity Legal is proud to have earned customer acclaim. Our reviews praise our 'exceptional legal assistance', 'knowledgeable and professional' approach and 'sound advice and clear representation on critical matters'. Find out how Velocity Legal can help you quickly and clearly draft a shareholder agreement.

Learn how Velocity Legal can Assist With your Shareholder Agreement

Velocity Legal specialises in commercial law, including shareholders' agreements and unitholder agreements. Let us assist you in ensuring your rights and interests are protected through tailored solutions for your business needs.

To find out how we can support and streamline your shareholder agreement process, book your free consultation. Read Less

Contact

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What is a Buy Sell Agreement?

A Buy Sell Agreement is an agreement which typically deals with the consequences of a business partner suffering death, trauma or incapacity. The payment made by the remaining partners to the outgoing partner is commonly funded by insurance policies.

What is the difference between a Shareholders Agreement and a Unitholders Agreement?

The common theme with these contracts is that they regulate the relationship between co-owners. However, the underlying business structure is different. Owners of a company are shareholders (hence, an agreement between them is a Shareholders Agreement). Owners of a unit trust are unitholders (hence, an agreement between them is a Unitholders Agreement).

How do you charge?

Trust is one of our core values. We pride ourselves on not causing 'bill shock'. Our usual approach is to provide you with a clear and transparent fee quote to ensure that there are no surprises. You can then make an informed decision about whether you want to proceed or not.

There are only two of us that own the business. Do I need one of these documents?

It is important to have a co-ownership agreement in place, even if there are only two co-owners. Some argue that only having two business partners makes a co-ownership agreement even more essential (due to the increased chance of a deadlock).

What can I do to help mitigate the impact of a dispute if it does arise in future?

Enter into a co-ownership agreement (e.g. Shareholders Agreement, Unitholders Agreement or Partnership Agreement) as soon as possible after the inception of the business.

These agreements essentially create a rule book for the co-ownership relationship, and should contain an appropriate dispute resolution process.

Who commonly enters into a business co-ownership arrangement?

Common people who get involved in business co-ownership arrangements include friends, family members and third party investors.

What is business co-ownership?

Where a business has multiple owners. For example, if you own 50% of a business and someone else owns the other 50%, you two are in a business co-ownership relationship because you do not own the relevant company entirely yourself.

Team
Jess Hill

Jess Hill

Director

Greg Thomas

Greg Thomas

Director

Robert Osler

Robert Osler

Special Counsel

Edward Hart

Edward Hart

Senior Associate

Lauren Gross

Lauren Gross

Senior Associate

Bryan Yeo

Bryan Yeo

Special Counsel

Natalie Nie

Natalie Nie

Law Graduate