Can a Shareholders’ Agreement Be Amended?
If your company has more than one shareholder, you must consider drafting a shareholders’ agreement to protect your interests and those of your shareholders. While it is not required by law, it’s best practice to have it to outline the rights, responsibilities, and relationships of shareholders, directors & company board members. With this legally binding contract, potential disputes and conflicts among investors can be better handled. But as your company grows over time, another critical question will likely be raised: can a shareholders’ agreement be amended?
In this post, we’ll tackle that specific question. We will discuss the importance of a shareholders’ agreement, why it can be amended and how to set the changes.
What Is a Shareholders’ Agreement & Why Is It Important?
A shareholders’ agreement is a vital legal document that establishes the framework for the rights and responsibilities of a company’s shareholders, directors, and board members. This agreement is particularly crucial in businesses with multiple shareholders, as it provides a structured approach to handling & processing shares (buying, selling or transferring) and managing potential conflicts and disputes.
What Does It Cover?
This agreement comprehensively covers various aspects of company operations and shareholder relations. Key areas may include:
Setting company policies and procedures
Ensuring confidentiality
Guidelines for appointing directors
Dividend distribution strategies
Exit strategies for shareholders
Protocols for buying, selling, or transferring shares
Specifying rights related to the sale of shares, such as drag-along and tag-along rights
Detailing share ownership, including types and classes of shares
Criteria for adding or removing shareholders
Reporting obligations and resolving disputes
Balancing interests between different shareholder groups
Handling the death of a director
Consequences of Not Having a Shareholders’ Agreement
In the absence of a shareholders’ agreement, companies often encounter internal conflicts. This agreement significantly lowers the risk of such disputes by addressing potential contentious scenarios. For example, it helps prevent situations where majority shareholders are unable to sell their shares due to minority shareholder opposition. It can also detail a share vesting regime, specifying conditions for granting shares to employees, including how they will be paid and for how long.
To put it simply, a shareholders’ agreement is a comprehensive tool for governing company operations and managing shareholder relationships. It helps ensure stability and facilitates a company’s growth.
Why Change Your Shareholders’ Agreement & How Can You Do It?
As your company progresses through its lifecycle, growth and evolution are inevitable. These changes can render your initial shareholders’ agreement less effective or even obsolete. Particularly during capital raising phases, new investors might seek amendments to the shareholders’ agreement to secure enhanced rights and safeguard their investments. In other words, amending your shareholders’ agreement ensures it remains relevant, effective and aligned with your company’s current needs and future goals. Here are the key steps to amending this contract:
1. Deliberate Before Amendment
When contemplating changes to your shareholders’ agreement, especially with the introduction of new investors, careful consideration is key. Ensure that any proposed amendments are thoroughly negotiated to avoid disadvantaging current shareholders. And while operational changes might not demand as much scrutiny, it remains best practice to deliberate thoroughly on any intended modifications.
2. Review the Existing Agreement
Your current shareholders’ agreement likely outlines the procedure for amendments. Typically, altering the agreement necessitates unanimous written consent from all shareholders. Review your existing agreement to confirm whether that’s the case for your company and understand other steps required for amending the contract.
3. Set and Implement Changes Effectively
Securing a written agreement from all shareholders is critical to amending your shareholders’ agreement. Instead of drafting a completely new agreement, a deed of variation is often employed. This document details the proposed changes. Once signed by all involved parties, this deed activates the amended agreement, superseding the previous version.
Seek Legal Guidance from Bradley & Bray
In the intricate landscape of business law, particularly when it comes to shareholders’ agreements, the expertise of Bradley & Bray stands out. Our team of experienced business and commercial lawyers on the Sunshine Coast will help put a shareholder’s agreement in place early in your company’s lifecycle. Should you need to amend your shareholders’ agreement in Australia, our team will guide you in drafting a deed of variation and putting the agreed-upon amendments in writing.
Whether you’re integrating new shareholders or updating your company’s legal structure to reflect its current state, you can rely on Bradley & Bray. Our approach is both detailed and client-focused; we excel in crafting and amending shareholders’ agreements, ensuring each clause is meticulously tailored to your specific needs.
Contact us today to request a consultation.
This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
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