Why all Businesses need a Shareholders Agreement

If you run a business with an unrelated party, you really need to think about a Shareholders Agreement. It is common for small businesses to run on a handshake, and whilst this can work at first it can also end in heartbreak. Commerciality is important in businesses, particularly when bringing in new shareholders or a party looking towards retirement. A shareholder’s agreement can help these transitions function more smoothly.

A shareholders agreement includes:

  • Who can and can’t be shareholders 
  • An expectation of work commitment from owners 
  • An expectation setting around retirement or resignation 
  • An understanding of permanent illness  
  • Decision making processes and ‘voting’ 
  • Valuation methodologies for future transactions 
  • Share class rights 
  • Details of the debts of a business

Addendums to your shareholders agreement can include:

  • Dividend Policies 
  • Financial Statements  
  • Detailed valuation calculations 
  • Agreement to owner remuneration  
  • Budgets 

We believe that business owners should enter into a shareholder’s agreement when they are starting out because it is when they like each other the most. The world is full of possibilities and together, you are going to conquer your industry. It is an exciting time, and more often than not parties say they won’t need a shareholders agreement. A lawyer, or accountant, will tell you scenarios of what could happen but too often people think “it’s not going to happen to us”.  

Unfortunately, it does not always stay this way, and negotiating when you are already in conflict is harder, and more expensive. Think of a fire in your building. It destroys a major area and is a problem to be resolved before you can ‘get back to work as usual’. Insurance helps you put your business back together by providing the financial backing. A shareholder’s agreement is simply insurance for your business relationship, it will not stop the event from happening, but it will make it easier to work through.  

Accru can set you on the right path to avoid disputes between you and your fellow business owners today.

About the Author
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Accru Australia
Accru is an award-winning network of independently owned accounting firms. We help businesses grow, thrive and generate wealth for their owners while managing financial risk and compliance.
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