A Shareholder agreement can be a vital tool to protect your interests as a shareholder in a private company. Although shareholder agreements are most commonly used by shareholders in private companies, they can sometimes be used by large shareholders in public companies as a method of protecting assets when large movements in the markets are being orchestrated by institutional investors. Shareholder agreements can offer some protection from problems associated with the company having a secured lender or the company facing insolvency which can have disastrous effects for shareholders if they are not secured against this eventuality.
Some of the common problems which occur for shareholders in companies which a shareholder agreement can assist to protect shareholders with are the issuing of new shares which can dilute the capital of the shareholder and seriously reduce or even nullify the value of their investment in the company. If there is an existing contract with the other shareholders which requires consent to issue new shares, this gives control back to the drafter of the shareholder agreement of the number of shares in the company. Shareholder agreement can actually be used as a way of modifying the operation of the constitution of the company. In many cases, the companies adopt the standard replaceable rules which are used in companies from the Corporation Regulations and shareholder agreement can modify these rules to assist you to protect your interests.
Shareholder agreements can also assist in the legal protection of shareholder interests by ensuring that the shareholders who enter into an agreement with a director of the company which also works as an employee in the business has their exact legal position within the company clarified using the legal agreement which is formed between the director and the shareholders of the company. This is particularly useful when a small company engages a director as an employee in the company who is also another shareholder in the company. If you have any questions about a shareholder agreement, please do not hesitate to contact use as we regularly assist in the drafting and formation of these types of agreements.
