A shareholders’ agreement is a private contract between the shareholders of a company under which they agree to regulate their rights as owners and shareholders of the business.
It is distinct from the company’s constitution which is regulated by the Corporations Act. In the absence of a shareholders’ agreement, minority shareholders are at risk that, pursuant to the constitution, the majority of shareholders constituting 75 per cent or more of voting rights, may amend the rights of all shareholders.
If there is a conflict between the shareholders’ agreement and the constitution then it is common for the terms of the shareholders’ agreement to provide that the terms of the shareholders’ agreement prevails.
A shareholders’ agreement is an enforceable contract agreed between all shareholders and which can generally only be varied with the consent of all parties. Therefore, it operates to protect shareholders by creating contractual rights particularly in the case of minority shareholders.
It can deal with a range of issues relating to ‘control’, for example, upon the transfer or issue of shares by giving existing shareholders an equal right of pre-emption or an option to purchase the shares of an existing shareholder." end quote.
