July 2015 | Jonathan Harris

Whether you are investing in an existing company, or forming a new company, the key to the success of any company is the way in which the directors and shareholders run it.

But not all shareholders have the same idea about where the business is going and what will happen if something goes wrong.

Minimise future confusion

A Shareholders Agreement is one way in which you can minimise future confusion and frustration regarding the management of your company, particularly if a dispute arises.

Shareholders Agreements provide clear rules of engagement for shareholders and should identify:

  • the core business;
  • the delegations of power amongst the directors and shareholders;
  • the actions of the board that require unanimous consent;
  • if and when a shareholder can be forced out of the business;
  • what happens if a shareholder dies or becomes incapacitated; and
  • how new shareholders may be admitted to the company.

Although these may be awkward topics for discussion, it is wise to address these issues early on in the business relationship.

A regularly reviewed Shareholder Agreement is a key part of managing investment risks and we recommend that all companies that involve two or more shareholders seriously consider implementing one.

A small initial investment in drafting and executing a Shareholders Agreement for your company could save your investment and your business relationships in the future.

Written by Jonathan Harris
(02) 9231 2466

To discuss drafting a Shareholder Agreement for your business, please contact Jonathan on 9231 2466 or email jharris@hflawyers.com.au.

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