by Leigh Avuri, Principal of Avuri Lawyers

Many businesses today are operated via a company or a corporate trustee. While in the process of setting up a company, a company constitution will be drafted. However, it is often the case that the directors and shareholders of the company will overlook the need for a shareholders agreement. Along with the company’s constitution, a shareholders agreement is one of the most important company documents for any company.

As the shareholders are the owners of the shares in the company, it is important to set out the framework for the shareholders rights via a legally binding document between the shareholders. When a company is formed, not only is the company constitution imperative, but it is also important to have a shareholders agreement. Both the company’s constitution and shareholders agreement are the foundation for the corporate governance of your company.

A shareholders agreement will outline the shareholders rights, responsibilities and obligations, including the shareholders’ voting rights as well as each individual shareholder’s role in the company’s management, who controls the company, any decision making powers, the appointment of directors and the exit strategy for the shareholders for example. In a nutshell, the shareholders agreement will outline what a shareholder can and cannot do.

A shareholders agreement is a legally binding contract between the shareholders and as such, sets out how the company is to be managed and owned as well as how any dispute between shareholders is to be resolved. A shareholders agreement will also set out the framework for the transfer of shares. For example, a shareholders agreement will set out whether any shares are to be offered to the existing shareholders as a 1st option before being transferred to a new shareholder.

A shareholders agreement is one of the most important documents any company can have and in other words, we recommend all shareholders ensure that their company has a shareholders agreement.

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