Consider this if…
- You are starting a business with other people and nothing is written down
- You own the company 50/50 and have never discussed what happens in a deadlock
- A shareholder wants out and there is no agreed way to value or buy their shares
- You are bringing in an investor or a new partner
- One founder is doing most of the work and the shares do not reflect it
- Someone has sent you a shareholder agreement to sign
How it works
We ask the uncomfortable questions
What happens if one of you wants out. If one of you dies. If you cannot agree. If someone stops contributing. The agreement is the answers, written down.
First conversation
We work out what fits
A two-founder business needs different mechanics from one with an investor and an option pool. We do not start from a template and cut it down.
With the first draft
Draft and review
The agreement, and the constitution alongside it — they have to work together, and where they conflict it matters which one wins.
About a week for a first draft
Everyone gets to consider it
Each shareholder should understand what they are signing. Where interests genuinely diverge, we will say so and suggest independent advice.
As long as it takes
Signing and company records
Executed, and the company's registers and ASIC records brought into line with it.
On signing
Fee
Quoted in writing before we start
GST inclusive
Excludes: ASIC fees are set by the regulator and are additional.
Quoted in writing before we start. A two-founder agreement and one with investors, classes of shares and an option pool are different pieces of work and are priced differently.
Turnaround
A lawyer replies to your enquiry within one business day.
What the document is actually for
Almost every serious dispute between business owners comes back to a question nobody answered at the beginning. Who decides. Who can leave. What their share is worth. What happens if one of them stops doing the work.
A shareholder agreement is where those answers live. It is not a formality and it is not about anticipating bad faith — most of the situations it deals with are ordinary. Someone's circumstances change. Someone gets an offer. Someone dies. The agreement means the business already knows what happens next.
We have written about this at more length in our insights piece on why founders wish they had one earlier.
The clauses that do the work
Share transfers and pre-emptive rights. Whether a shareholder can sell to anyone they like, or must offer to the others first. Without this you can end up in business with a stranger, or a competitor.
Valuation. How a departing shareholder's shares are priced. An agreed mechanism — an independent valuer, a formula, a multiple — settles in advance what otherwise becomes the entire dispute.
What happens on exit, and why it happened. Most agreements distinguish between a good leaver and a bad leaver: someone who resigns amicably, versus someone removed for cause. Treating those identically is usually unfair to somebody.
Death and disability. Compulsory transfer provisions so the shares come back to the business rather than passing under a will, and — this is the part most agreements forget — a funding mechanism, usually insurance, so the remaining shareholders can actually pay for them.
Deadlock. What happens when the owners cannot agree. Escalation, mediation, a casting vote on defined matters, or a buy-sell mechanism. Essential in a fifty-fifty company and useful in any of them.
Reserved matters. The decisions that need more than a simple majority — taking on debt, issuing shares, changing the business, paying dividends, selling. This is what stops a majority holder making unilateral decisions that change the deal for everyone else.
Roles, effort and pay. Who is expected to work in the business, how much, and what they get for it. Founder disputes very often start here rather than with money.
Drag-along and tag-along. If a buyer wants the whole company, can the majority compel a minority to sell — and if the majority sells, can the minority insist on being included on the same terms.
Restraints and confidentiality. What a departing shareholder can do next.
Dividends. Whether profits are distributed or reinvested, and who decides.
Where it interacts with the constitution
They are different documents and they have to be read together. The constitution is public, filed with ASIC, and governs the company's internal management. The shareholder agreement is private and governs the owners' relationship with each other.
Where they conflict, which one prevails is a question of drafting, and it is worth getting right rather than assuming. We look at both, and we will usually recommend adjusting the constitution rather than leaving an inconsistency to be argued about later.
If you have been sent one to sign
Read it as the person it applies to, not as a document about the company. The questions worth asking: what am I agreeing to do, what happens if I want to leave, how would my shares be valued, and what could happen to me without my consent.
Where the shareholders' interests genuinely differ — a founder and an incoming investor, say — separate advice is appropriate, and we will say so rather than act for everybody and hope.
Frequently asked questions
We already have a constitution. Do we need a shareholder agreement too?
They do different jobs. A constitution governs how the company operates and is a public document filed with ASIC. A shareholder agreement is private and governs the relationship between the owners — who can sell, what happens on exit, how decisions get made, how disputes are resolved. Most constitutions are close to a standard form and deal with almost none of that.
What happens if we do not have one?
The Corporations Act and the constitution fill the gap, and neither was written with your business in mind. There is generally no agreed mechanism to value or compel the sale of shares, no way to break a deadlock, and no restriction on a shareholder selling to someone you would not have chosen. The available remedies tend to be litigation, which is slow and expensive and rarely leaves the business intact.
We are 50/50. What happens if we disagree?
Without a mechanism, very little — and that is the problem. Neither of you can pass a resolution the other opposes, so the company stops being able to make decisions. A shareholder agreement can provide for it: an escalation process, a mediator, a casting vote on defined matters, or a buy-sell mechanism where one side names a price and the other chooses whether to buy or sell at it. Fifty-fifty companies need this more than anyone and have it least often.
What happens if a shareholder dies?
Without an agreement, the shares pass under their will — so you may find yourself in business with a spouse or an adult child who has no involvement in it and no wish to be there. An agreement can require the shares to be offered to the remaining shareholders, set out how they are valued, and be funded by insurance so the money is actually there. This is one of the clauses that most reliably prevents a disaster.
Can we just use a template?
You can, and the difficulty is that the clauses which prevent disputes are the ones a template cannot write — the valuation mechanism, what counts as a departure, which decisions need everyone's agreement, what a leaver who resigns gets versus one who is removed for cause. A template gives you the structure without the answers, and the answers are the point.
When is the right time to do this?
At the start, when everybody is optimistic and nobody has anything to lose by being reasonable. The conversation becomes far harder once there is real value in the company or a disagreement already under way. The second-best time is now.
Related services
Tell us how many shareholders there are and whether anything is written down already.
Talk to us about your company