Why Every New Company Needs a Shareholders Agreement—Drafted and Executed Early
July 16, 2025
Starting a new company is an exciting venture, but establishing a solid legal foundation from the outset is critical for long-term success. One of the most overlooked yet essential documents for any business with more than one shareholder is a Shareholders Agreement. Engaging a commercial lawyer to draft and assist you to validly execute this agreement at the commencement of your business can protect your interests, prevent disputes, and set your company up for lasting stability.
What is a Shareholders Agreement?
A Shareholders Agreement is a private, legally binding contract between a company’s shareholders (and often the company itself). It sets out how the company is managed, how key decisions are made, how exits or disputes are handled, and what happens if a shareholder wishes to leave or transfer their shares.
Key Reasons to Get a Shareholders Agreement Drafted by a Commercial Lawyer
1. Clarity and Certainty on Roles and Rights
- Clearly outlines each shareholder’s rights, responsibilities, and decision-making powers from the outset.
- Removes ambiguity around management structure, voting rights, and director appointments, helping to avoid misunderstandings and conflicting expectations.
2. Preventing Costly Disputes
- Provides agreed procedures for resolving conflicts, often through internal mechanisms and alternative dispute resolution before court action.
- Helps ensure minor disagreements do not escalate into expensive and disruptive legal battles.
3. Protecting the Interests of All Shareholders
- Safeguards the investments and interests of both majority and minority shareholders, preventing unfair treatment and providing mechanisms for redress.
- Outlines how decisions are made, including which require unanimous or special majority consent, benefiting both active and passive shareholders.
4. Smooth Share Transfers and Exit Strategies
- Details rules for issuing new shares or transferring existing ones, including pre-emptive and “drag-along” or “tag-along” rights.
- Ensures continuity and stability if a shareholder wishes to leave, retires, or passes away, preventing unwanted third parties from joining the company.
5. Business Growth and Investment Readiness
- Demonstrates business maturity and governance, giving confidence to future investors, banks, and other stakeholders.
- Investors often insist on a robust agreement as a prerequisite for funding rounds or other strategic partnerships.
6. Protecting Confidentiality and Company Value
- Includes clauses safeguarding against misuse or disclosure of confidential company information.
- Prevents former shareholders from directly competing with the business or poaching key staff and clients.
Why Get Help from a Commercial Lawyer?
While some templates are available online, they rarely address the unique dynamics and needs of each startup. A commercial lawyer will:
- Tailor the agreement to your business’s structure, goals, and risk profile.
- Ensure compliance with the
Corporations Act 2001 (Cth) and other relevant Australian laws.
- Minimise the risk of unenforceable or contradictory clauses and keep your agreement up-to-date as your business evolves.
The Importance of Executing the Agreement at Commencement
Executing a shareholders agreement at the start of your business journey:
- Ensures all founders and shareholders are aligned before capital, effort, and goodwill have been significantly invested.
- Avoids “moving the goalposts” after the fact, when negotiations may be more contentious or when disputes have already emerged.
- Ensures the terms are legally binding and enforceable, giving all parties true peace of mind.
Conclusion
A shareholders agreement is not a statutory requirement—but for any new Australian company with more than one shareholder, it is a critical tool for risk management, governance, and business success. Engaging a commercial lawyer to draft, tailor, and help you execute this document from day one offers real protection and clarity for your business and its investors.
If you’re setting up a company, connect with Crabtree Legal to ensure you start up with the right legal structure in place. We can help tailor a shareholders agreement to fit your business, safeguard your rights, and support your future growth.
This article is provided for general information only and does not constitute legal advice. For advice tailored to your business, please contact Crabtree Legal.
Crabtree Legal extends our sincere thanks to The Executive Centre for graciously hosting yesterday's Member Showcase lunch event, where our Director, Jonathan Crabtree, had the pleasure of presenting to fellow business owners. The session explored the limitations of Artificial Intelligence (AI) in drafting key legal documents for start-ups and Small to Medium Enterprises (SMEs). Together, we examined common pitfalls that arise when relying solely on automated drafting tools, including the risks of incomplete agreements, unenforceable clauses, and loss of commercial protection. We are particularly grateful to the business owners and entrepreneurs who attended and contributed to the discussion. Your questions, insights, and shared experiences sparked an engaging and practical conversation about balancing technological progress with the value of tailored legal advice. At Crabtree Legal, we remain committed to helping Perth’s business community make informed decisions as they grow and protect their ventures. Events like this highlight the strength of collaboration between local professionals and the importance of thoughtful, legally sound documentation in every stage of business development. To learn more about how we assist start-ups and SMEs with business structuring, shareholder agreements, and contract reviews, please contact us.
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