Do I need a shareholders’ agreement if the company has a constitution?
Yes! Plus, you probably need a new constitution too.
A constitution is available for public viewing (at the Companies Office website). So, it’s not the ideal place to put private information (e.g. how contributions from shareholders will be valued, what shareholder loans have been made, what put and call options are available, what restraints are on a leaving shareholder and the company’s dividend policy). All those things sit best in a shareholders’ agreement.
But (!), every company should have a constitution. A constitution allows a company to give itself, and its officers, extra rights not otherwise “baked-in” by the default position under the Companies Act 1993 – e.g. allowing indemnification and insurance of directors, changing the procedures the Company must follow if it wants to issue shares (including by-passing pre-emptive rights in limited circumstances) and appointing alternate directors.
A well-governed company has a good constitution AND a carefully drafted shareholders’ agreement – with the latter prevailing. A lot of constitutions are cheap precedents that are, frankly, hopeless when you need them most.
Questions?
Require assistance navigating a complex shareholders’ agreement? Want to explore your options? Something else? Get in touch with the team.
This article is part of our series, "Shareholder’s Agreements: Your Business Toolkit", providing practical insights to fortify your business foundations.
Read part 1
Read part 2
