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Overview

Plan for the disagreement before it happens

Does your company have more than one shareholder? Then the most valuable document you will ever sign is the one that says what happens when you stop agreeing.

We liken a Shareholders’ Agreement to a corporate pre-nuptial agreement. Everyone signs it while they still like each other, and nobody expects to need it. It gets read for the first time on the worst day of the company’s life, which is exactly why it has to be written for that day.

Lawnch has workshopped shareholder arrangements for two founders splitting a new company and for established boards bringing institutional money onto the register. The document looks different at each end. The discipline is the same

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What a Shareholders’ Agreement actually does

It sets the rules between the people who own the company. Who decides what. What happens when the business needs more money. What happens when a shareholder wants out, gets sick or dies. How shares are valued, and who is allowed to buy them.

Without one, you have no clear pathway to sell your shares. A lot of business owners assume the Corporations Act or their constitution already covers this. The Act does not, and in our experience the constitution rarely does either. We have sat across the table from plenty of clients who would give a great deal to go back and document this properly the first time. If you are unsure where you stand, ask us.

A well-built shareholders’ agreement covers:

  • decision-making thresholds, and what needs unanimous consent, if anything (we workshop this with you)
  • the process for working capital contributions when the company needs funding
  • share transfer rules, pre-emptive rights, drag-along and tag-along provisions
  • valuation methodology, agreed before anyone has a reason to argue about it
  • exit, death, disability and default scenarios
  • restraint of trade and confidentiality between shareholders
  • dispute resolution, so a disagreement does not become litigation
  • how to bring in, or exit, employee shareholders
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We already have one, so we are fine, right?

Two questions decide that.

Did you buy a template?

Off-the-shelf agreements are written for a company that does not exist. They cover the generic scenarios and miss the specific one that will actually happen to you, which usually involves a particular shareholder, your particular funding plans, or the investor you are about to bring on.

One template agreement we reviewed required unanimous shareholder approval before the company could take on a $50,000 debt to make payroll. The company had thirty-three shareholders, several of whom lived overseas and were difficult to reach. Unanimous was never going to happen. A template that saves you money today can cost many times that to unwind later.

Did your lawyer workshop the scenarios with all the shareholders?

This is the part most firms skip. A shareholders’ agreement is only worth what it is worth on the worst day. If nobody has sat your board and shareholders down and walked them through what happens when one of them wants to leave in year three, the document has not been tested. We test it before you sign it, not after.

If your agreement is more than three years old, or predates a capital raise, a new shareholder or a change in strategy, it needs a look.

Tammi and Ben, Lawnch Directors

Shareholders’ Agreement lawyers on the Gold Coast

Lawnch prepares and workshops shareholders’ agreements for businesses across the Gold Coast, and for companies in Brisbane, Sydney, Melbourne and beyond. We are based at 18/99 West Burleigh Road, Burleigh Heads, and the work runs just as well over a call as it does in our boardroom.

We are commercial lawyers first, led by a founder with 18+ years of legal experience who has also built and run two companies of her own, and supported by an Accredited Specialist in Commercial Litigation. That combination matters more here than on any other document we draft. Drafting a shareholders’ agreement is straightforward. Knowing which clause gets litigated, and telling you now which decision you will regret in three years, is not.

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The Lawnch difference

What usually goes wrong

– You find out about the problem when it is already a problem

– The answer arrives four days after the deal needed it

– Advice comes as a list of considerations, not a decision

– You sign a document nobody walked you through

– The agreement does not survive its first real test

– The bill arrives with no relationship to the scope discussed

– Your lawyer knows the law but not your business

The Lawnch way

  • We work with you proactively to identify what you do not know yet
  • So quick to respond, we will be waiting on you
  • We tell you what we would do, and why
  • We workshop documents with you so you understand the implications
  • Every agreement is built for the raise, the dispute or the exit that will test it
  • Fixed scope agreed before we start
  • Our founders have built, run and exited companies of their own
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FAQs

Frequently Asked Questions

  • A Shareholders’ Agreement is a private contract between the owners of a company that sets out their rights, responsibilities and obligations to each other. It governs decision-making, funding, share transfers and what happens when a shareholder exits, which the Corporations Act and a standard constitution do not adequately cover.

  • Yes, and two shareholders is the situation where it matters most. With two owners, any disagreement is a deadlock, and without an agreed process to break it the company can be paralysed. The document is cheapest and easiest to negotiate now, while you agree on everything.

  • Cost depends on the number of shareholders and the complexity of the arrangements, and we will quote the job before we start. A tailored agreement for a straightforward two or three shareholder company sits well below the cost of one week of a shareholder dispute. Your first consultation is free.

  • A constitution is a public document filed with ASIC that governs the company itself. A Shareholders’ Agreement is a private contract that governs the relationship between the owners, and it can cover things a constitution cannot, including funding obligations, restraints and agreed share valuation methods. Most companies need both, and they need to be consistent with each other.

  • You can, but a template is written for a company that does not exist and cannot anticipate your shareholders, funding plans, or exit. The value in a Shareholders’ Agreement comes from workshopping the specific scenarios your business will face, which a template cannot do.

  • Without one, disputes are resolved by the Corporations Act, the constitution and eventually a court, none of which know what you and your co-founder actually agreed. In practice, that means slow, expensive and uncertain outcomes, and it usually surfaces at the worst possible moment, such as during a raise or a sale.

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