No Shareholder Agreement In Place

Non-compete agreements are best reserved for the shareholder contract, as this increases the likelihood of application. Such a clause prevents other shareholders from taking back the company`s know-how and acting on their own. If there is no agreement, shareholders risk losing valuable information and techniques if one of them leaves the company. In addition, the agreement also defines how dividends are shared. This is important if shareholders make a different contribution to the company. If no agreement is signed, there would always be confusion about how dividends are paid. For example, a shareholder disagreement on a wide range of issues (from management to the appointment of a new director or the issuance of new shares) is resolved without exception by a majority decision. If the relationship between the two 50/50 shareholders has not been irreparably damaged, some kind of agreement can often be negotiated. That sounds fair, but if a minority shareholder feels aggrieved, it can create a loophole, especially if there is a justification for how he feels. B for example, that he/she could have expected that the possession of 25% of the shares represents 25% of the profits, but there is no guarantee that there is no shareholders` pact. This means that you do not have the protection of legal liability insurance, which is a good reason to use a qualified lawyer to prepare such an agreement.

Even if you have been working smoothly for some time and implicitly trust your business partners and other shareholders, this may change since then. In limited cases, a minority shareholder may invoke protection under the Corporations Act. But in practice, the provisions applicable to minority shareholders are cumbersome and often little or no practical help. A minority shareholder will be in a better position if the issues are resolved, when the shares are acquired or before problems arise. This is particularly the case in situations where the voting shares in a company are equal (50% each) are held by only two individuals or companies. This is often the case for small limited companies. Without the clarity of an agreement, in the event of a dispute and in the absence of an agreement between the shareholders, there may be an impasse, because none of the shareholders has control of the company. This will obviously prove problematic, especially if one of the shareholders acts inappropriately or is at fault.