Do I need a Shareholders Agreement for my company?

A Company Constitution is often a generic document managed by ASIC rules. A Shareholders Agreement is a bespoke contract between the owners that acts as the “rulebook” for the relationship.

Critical Clauses

1. Pre-emptive Rights on Issue

If the company issues new shares to raise money, existing shareholders usually have the right to buy them first to avoid being “diluted” (having their percentage reduced).

2. Right of First Refusal on Transfer

If a shareholder wants to leave, they cannot just sell their shares to a stranger. They must offer them to the other shareholders first.

3. Drag Along / Tag Along

• Drag Along: If the majority (e.g., 75%) finds a buyer for the whole company, they can force the minority to sell too. (Crucial for exiting).
• Tag Along: If the majority sells, the minority has the right to “tag along” and be bought out at the same price.

4. Deadlock Breaking

If shareholders are split 50/50 and cannot agree on a major decision, the agreement prevents paralysis. Mechanisms include:

• Chairman’s casting vote.
• Shotgun Clause: One party names a price, and the other must either buy or sell at that price.

Related Topics

• Pty Ltd Structure
• Directors Duties
• Commercial Law Practice Area

Protect Your Investment

Without this agreement, a dispute can freeze the company and destroy its value.

Multi-owner business? Contact us to draft an agreement. Call (07) 5532 8777.