October 8, 2019

#2 Getting the Most from your Shareholders Agreement – SMEs

In this article we discuss the need for SME’s in the mining and resources sectors to implement Shareholder Agreements and why these documents are crucial for protecting your business interests, and in turn, your personal prosperity.

SME Business Success = Personal Prosperity

#2 Getting the most from your shareholders agreement

Let’s face it, building personal prosperity is the whole point of being in business. However, operating and sustaining a successful business is fraught with distractions. And while seemingly bigger picture financial, business and legal matters demand your attention, if you haven’t done so already, implementing a Shareholders Agreement should be top of your list of priorities.

While your accountant and business advisor can help you manage and build a profitable business, it is your legal advisor who can help you prepare a Shareholders Agreement that protects your business interests and current and future prosperity.

Why do I need a Shareholders Agreement?

When a company is established through a lawyer, accountant or an incorporation service, it will almost always have a company constitution, which comprises a set of generic rules for how the company will be operated. This may be adequate if the company has only one shareholder who therefore has complete control.

However, as soon as the company has more than one shareholder, a bespoke Shareholders Agreement is required that covers the detail on key matters concerning how the shareholders want to operate the company.

If these matters are not thoroughly discussed and agreed by shareholders prior to or just after incorporation, the potential for costly, stressful, distracting and time-consuming disputes in the future is greatly increased.

What should a Shareholders Agreement include?

A Shareholders Agreement should address key issues in plain, easy-to-understand English that provides certainty. It must address all the issues that are crucial to the efficient and effective operation of the company, as well as major events that could easily result in conflict or a dispute among shareholders.

Key clauses that must be considered include entry and exit of shareholders; valuation of shares in the company; funding of the company; composition of the board of directors and board meeting procedures; death or TPD of a shareholder; restraints of trade; and more.

Once a Shareholders Agreement is in place, the company should be operated in alignment with it. This includes holding board and shareholder meetings as set out in the Shareholders Agreement, having proper meeting agendas and minutes and properly documenting any other decisions or transactions which occur pursuant to the provisions of your Shareholders Agreement.

While it may seem inconvenient to undertake these processes when the company is operating smoothly, if they are followed and source documentation created, it will have huge evidentiary value in the event of a later dispute regarding how the provisions of the Agreement are to be enforced.

What’s the value of a Shareholders Agreement?

It makes strong commercial sense to invest the time and effort to draft and implement a well-considered Shareholders Agreement that will help you to avoid a shareholder dispute. The legal costs of shareholder disputes are very significant, possibly six figures if a dispute goes to Court. This figure also does not take into account the lost time, stress and animosity that can arise from a shareholders’ dispute.

To assist SMEs in mining and resources, we have developed a free Shareholder Agreement Questionnaire. Completing the questionnaire helps you consider the key matters pertaining to your Shareholders Agreement and, importantly, enables us to prepare your bespoke Shareholder Agreement quickly and efficiently.

Having created the foundations for a profitable SME with the advice of your accountant and business advisor, a sound strategy is to protect your business with a Shareholders Agreement. Further, engaging the collaborative, ‘connected’ team of professionals at Resources Unearthed will eliminate the inefficiencies and missed opportunities that can arise if your professional relationships are ‘unconnected’.

In our next article we explore important strategies for extracting wealth from the business and protecting the individuals who own and operate the business and the legacy they are creating for future generations.

Your next step…

To find out more about how to implement a bespoke Shareholder Agreement for your SME in mining and resources, please contact Ian or Craig on +61 (0)7 3007 2000 or  contact@resourcesunearthed.com.au

Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in mining and resources. 

No responsibility will be taken by Hillhouse Legal Partners for loss occasioned directly or indirectly to any person acting or refraining from acting wholly or partially upon or as a result of the material in this publication.


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