Shareholder Agreements Company Constitutions

Shareholder Agreements and Company Constitutions

We assist clients with the drafting and execution of shareholder agreements and company constitutions – important corporate governance documents.

A company’s internal management is governed by:

- certain provisions of the Corporations Act 2001 (Cth) known as ‘the replaceable rules’,
- a company constitution, or
- a combination of the replaceable rules and a company constitution.

A shareholders agreement is a document supplementary to a company constitution governing the rights and responsibilities of shareholders and their role in the management of the company.

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Company constitutions

A company constitution displaces or modifies the replaceable rules with the exception of certain replaceable rules which are mandatory for all companies. Companies with no constitution are governed by the replaceable rules unless the same person is sole director and sole shareholder (see further information below). ‘No liability’ public companies and ‘special purpose’ companies must have a company constitution.

A company constitution is a contract between:

the company and each shareholder,
the company and each director,
the company and the company secretary, and
a shareholder and each other shareholder.

A company constitution governs internal management with rules regarding the relationship between directors and shareholders including:

share classes and the rights of shareholders,
the powers of the directors,
processes for appointing and removing directors,
arrangements for company meetings,
the execution of company documents, and
the process of amending the company constitution.

Sections 198E, 202C and 201F of the Corporations Act 2001 (Cth) set out rules applicable only to companies in which the same person is sole director and sole shareholder. These companies may still have a company constitution, however, the rules in sections 198E, 202C and 201F cannot be modified.

Shareholder agreements

Shareholder agreements are a key element in managing risk and growth. It is important that company founders engage in a constructive and practical way to create a shareholder agreement that is tailored to the company’s direction and objectives.

A shareholders agreement is a contract between the shareholders of a company governing a range of crucial matters including:

the relationship between shareholders,
control, ownership and management of the company,
the protection of the rights of shareholders,
the protection of the business, and
how shareholders exit the company.

Important clauses of a shareholders agreement include:

the rights and obligations of directors,
the rights of shareholders in the appointment and removal of directors,
whether a managing director is to be appointed and, if so, their role and responsibilities,
the frequency of meetings and the voting rights of each director and shareholder at meetings,
restrictions on the transfer of shares to competitors and unknown or incompetent third parties,
mechanisms for resolving disputes and breaking deadlocks between,
shareholders including the process for determining share price in the event of certain transfers,
shareholder rights to purchase shares being offered to a third party, and
restraint of trade clauses prohibiting shareholders from involvement in competing businesses.

Disclaimer

The information provided above is not to be taken or relied upon as legal advice and Jason Francis Commercial and Construction Lawyer will not be responsible for decisions made or acts or omissions undertaken in reliance on this information. It is information intended as a guide only. You should obtain independent legal advice in respect of any issue or query you may have after reading this information.

Liability limited by a scheme approved under Professional Standards Legislation.

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I engaged Jason to draft an application for federal government approval in relation to mining operations in Papua New Guinea. Jason did a great job drafting and compiling the necessary documentation and we subsequently obtained the necessary approval.

Martin Wilson

CAVALIER GOLD PTY LTD

We became involved in a dispute with a builder following serious building defects in the early stages of the construction of our new home. We took the builder to court and were able to settle early without the cost of a hearing. It was a good result for us.

Helen Nguyen

FARFIELD EAST

Jason helped me with a difficult court matter which posed a real threat to my horse-training business. Thanks to Jasons professional and thorough preparation, I achieved a great outcome and my business was able to continue unaffected.

Stephen Byrne

HAT CREEK PTY LTD

I was in a very critical situation with a building company wanting money that was not owed to them. Jason was very understanding & professional in attempting to negotiate with the Company. I had a great deal of confidence that he would provide a positive outcome. I would recommend Jason highly to anyone dealing with a difficult situation in Commercial or Construction Law

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