When starting a business in Australia, most entrepreneurs focus on the big picture—funding, operations, and growth strategies. However, one critical document that often gets overlooked is the shareholders’ agreement. Under Australian Commercial and Corporate Law, this agreement plays a pivotal role in governing how a company is managed, how profits are distributed, and what happens if disputes arise.

Without a well-drafted shareholders’ agreement, you risk internal conflicts that could derail your business. In this article, we explore the essential clauses every shareholders’ agreement should include to ensure clarity, fairness, and legal compliance.

What is a Shareholders’ Agreement and Why Do You Need One?

A shareholders’ agreement is a legally binding document between the shareholders of a company. It outlines their rights, responsibilities, and obligations, as well as rules for decision-making, profit distribution, and dispute resolution.

Unlike a company constitution, a shareholders’ agreement is private and provides additional protection and flexibility to the parties involved. It becomes particularly important when disagreements arise or when shareholders want to exit or sell their shares.

Essential Clauses for Every Shareholders’ Agreement

Ownership Structure and Capital Contributions Clearly specify each shareholder’s ownership percentage and how much capital they have contributed. This clause prevents disputes over equity distribution and voting rights.

Rights and Responsibilities of Shareholders Outline the roles of each shareholder, their voting rights, and involvement in day-to-day decision-making. This section should also clarify whether certain decisions require unanimous approval or a simple majority.

Dividend Policy Explain how and when dividends will be distributed among shareholders. Will profits be reinvested into the business, or will they be paid out regularly? Setting clear expectations avoids misunderstandings later.

Transfer of Shares Include rules governing the sale or transfer of shares. A common clause is the right of first refusal, which gives existing shareholders the first opportunity to buy shares before they are sold to an outsider.

Exit Strategy and Buy-Sell Provisions Plan for scenarios such as retirement, death, or voluntary exit of a shareholder. A buy-sell agreement or valuation mechanism ensures fairness when shares change hands.

Dispute Resolution Mechanism Disagreements among shareholders can cripple a company. Include a dispute resolution clause specifying whether disputes will be resolved through mediation, arbitration, or court proceedings under Commercial and Corporate Law.

Confidentiality and Non-Compete Clauses Protect sensitive business information with confidentiality obligations. A non-compete clause prevents departing shareholders from starting or joining a competing business within a specified period and region.

Deadlock Provisions When equal shareholders disagree on critical decisions, it can lead to a deadlock. Include provisions such as buyout options or appointing an independent mediator to resolve impasses.

Amendment and Termination Clauses The agreement should state how amendments can be made and under what conditions the agreement will terminate. This ensures flexibility as the company grows and changes.

While template agreements exist online, they often fail to address the unique needs of your business. Each company’s circumstances differ, and compliance with Australian Commercial and Corporate Law is essential.

An experienced lawyer can draft a customised agreement that protects your interests, minimises disputes, and complies with all legal obligations.

Contact New South Lawyers today to safeguard your business future.