Your company’s shareholders agreement will set out (among other things) shareholders’ rights and obligations to the company and each other. Although the law does not require you to have a shareholders agreement, it is best practice to have one if your company has more than one shareholder. Having a shareholders agreement ensures that everyone understands how your company is run and managed and what each shareholder’s rights are. This helps to reduce the likelihood of disputes. This article will discuss how you can change your company’s shareholders agreement. 

Why Change Your Shareholders Agreement?

You will usually put a shareholders agreement in place early in your company’s lifecycle. Over time, your company will grow and evolve in a way that makes your existing shareholders agreement no longer suitable. Often, when a company raises capital, its investors may request changes to the shareholders agreement. This is to ensure that they have greater rights and can better protect their investment. 

Consider and Confirm the Change

Depending on why you are considering an amendment to your shareholders agreement, you should first confirm that you want to make the change. Typically, this will be relevant where you are considering changing your shareholders agreement because you are onboarding a new investor. If an investor is requesting changes to your shareholders agreement, you should ensure that you have properly negotiated these changes. This is to ensure that the change does not unreasonably disadvantage you and your existing shareholders. However, if you are making operational changes, this consideration may not be as relevant. It is still best practice to make sure that you intend to make the changes.

Check Your Existing Agreement

Most shareholders agreements will set out the process for amending it. Typically, a change to your company’s shareholders agreement will require all of the shareholders to agree to the change in writing. You should check your shareholders agreement to confirm whether this is the case for your company. If it is not, you should follow the steps in the shareholders agreement to amend or vary it.

How to Make the Change

In most instances, you can make a change to your shareholders agreement by having all shareholders agree to the change in writing. Rather than signing an entirely new shareholders agreement, you may have each shareholder sign a deed of variation. This is a document which will set out all the relevant changes to the shareholders agreement you are proposing. 

Once signed by all parties, the amended shareholders agreement will be in force and will replace the existing agreement. You do not need to lodge the new agreement with ASIC or to notify them of this change. 

Key Takeaways

There are many reasons why your company may need to change its shareholders agreement as its needs and demands change. Before making any changes, you should ensure that those changes are appropriate. Usually, changing your shareholders agreement will require each shareholder to agree in writing. This is often done by preparing a deed of variation which each shareholder will sign, or by preparing an amended shareholders agreement which each shareholder will then re-sign. You should ensure that you follow the appropriate steps in your shareholders agreement to make a change to the agreement. If you have any questions shareholders agreements, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page. 

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