Five Reasons You Should Have a Shareholders Agreement

What is a Shareholders Agreement?

A shareholders agreement is a legally binding contract between the shareholders of a company that describes how the company should be operated and outlines shareholders’ rights and obligations. The agreement also includes information on the management of the company and the protection of shareholders.

Five Reasons Why You Should Have a Shareholders Agreement

A company should have a shareholder agreement for the following reasons:

  1. The existence of a shareholders agreement can assist in raising finance from banks or creditors and also demonstrates the stability of the business to other potential partners.
  2. With a shareholders agreement, each party will have a clear understanding of their responsibilities, financial input and voting arrangements. For example, a shareholders agreement contains restraint of trade provisions preventing a shareholder from competing with the company. It will also detail how shares can be sold or transferred to third parties.
  3. Avoiding disputes. A shareholders agreement can be very useful in avoiding and managing costly disputes and can include provisions setting out a mechanism for the parties to resolve disputes without needing to dissolve the company.
  4. Confidentiality. A shareholders agreement containing confidentiality provisions is the best way for a company to ensure that the shareholders will keep information about the company and its intellectual property confidential during the life of the agreement and following its termination.
  5. Economical. The cost of obtaining a shareholder agreement is minor compared to the major expense of a legal dispute. Having a shareholders agreement in place can assist in avoiding litigation and its associated costs if a dispute arises.


Key Takeaway
A shareholders agreement covers the funding, structure, management and direction of a company. As has been shown, it has a number of advantages and should be considered essential for every company.

To speak to a lawyer about obtaining a shareholders agreement, call Vault Legal today on 1300 002 212 or email us at


Key words: shareholders agreement, company, legal disputes, management, confidentiality, intellectual property and restraint of trade.