SHAREHOLDER AGREEMENTS
PRESENTEDBY ADAMGOLDNER|SPECIALCOUNSEL PROPERTYANDCOMMERCIALLAW CONFERENCE2023 28 APRIL 2023 Page 2
Designingshareholderagreements:Commonpitfalls Governance,control,andfinanceinShareholder Agreements Entryandexitstrategies OUTLINE 1 2
WhoistheClient?
WHOISTHECLIENT?
Generalrule-section15(1)
oAsolicitorandlawpracticemustavoidconflictsbetweentheduties owedtotwoormorecurrentclients,exceptwherepermitted Actingformultiplepartiessection15(3)
oPermittedprovidedthateachclientisawarethatthesolicitoris actingfortheclientandeachclienthasprovidedinformedconsent tothisarrangement.
Companyvofficersvshareholders
Otherconflictse.g.directors,trustees,etc
DESIGNINGSHAREHOLDERAGREEMENTS:COMMON PITFALLS
1.Noagreement/Agreementisnotfit-for-purpose 2.Incorrectparties
3.ConstitutionvsShareholdersAgreement
oTheShareholdersAgreementdoesnotsubstitutefor,orreplace,the companyConstitutionorlegislation
oIntheeventthereisaconflictbetweentheConstitutionandthe ShareholdersAgreement,enforceabilityissuesmayarise
oOftentheShareholdersAgreementcontainsaprovisionstatingthatit willoverridetheConstitutionintheeventofanyinconsistency
4.Underlyingstructures
5.AgreementvsDeed
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GOVERNANCE,CONTROL,ANDFINANCEIN SHAREHOLDERAGREEMENTS
ControlandManagement
oExecutiveCEOandsenior management
oBoardofdirectors
oShareholdersinMeeting
GOVERNANCE,CONTROLANDFINANCE
Managementbytheexecutives
oWhatwillbetherelationshipbetweenthemanagingdirectorandtheBoard?
Whoshouldappointhim/her?
ManagementbytheBoard
oRoleofBoard
oAppointmentofinitialdirectorsandelectionofadditionaldirectors
oMaximumnumberofdirectors?
oAppointmentandremovalofrepresentativedirectors
oAlternate/nomineedirectors
o etc
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GOVERNANCE,CONTROLANDFINANCE
Overallcontrolbythe shareholders
oDecisionstobereferredback toshareholders
oFundamentalmatters (apportionmentbetweenthe Board,specialmajorityor unanimousapproval)
GOVERNANCE,CONTROLANDFINANCE
Financing
oProfits
GrowthvIncome
Incentivisationi.e.earnouts,dividend reinvestment/employeeshareschemes
oInitialFunding
Sharecapital
oSubscription
oPreferenceshares
Convertiblenotes
DebtFunding
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GOVERNANCE,CONTROLANDFINANCE
Sourcesoffurtherfunding
oEquityshareholderssubscribingfor moreshares
oShareholderloansshareholders lendingmoneytothecompany
oThirdpartyloans-financingis obtainedfrombanksetc.Thismay requireguaranteestobeprovided bytheshareholders
GOVERNANCE,CONTROLANDFINANCE
Equity
oCascading,steppedprocedureoffundingoptionsbeforea companycanconsidertheissueofadditionalshares
oProhibitionoftheissueofadditionalcapitalunlessthereisan unanimousresolutionofdirectorsorshareholders
oPre-emptionprocedure
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Funding Equity
loans
loans Page 10
Shareholder
Thirdparty
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GOVERNANCE,CONTROLANDFINANCE
Shareholdersloan
oInterestfreeoroncommercialterms?
oSecured?
oSubordinatedtothirdpartyfinanceorrankedequallyasother loans?
oShouldentitlementtoreceiveinterestbewaiveduntilthe companyhasacertainnetprofitaftertax?
GOVERNANCE,CONTROLANDFINANCE
Thirdpartyloans
oMayassetsandinterestsofthecompanybeencumbered,and ifso,onwhatconditions?
oShouldeachshareholder/directorberequiredtogive guaranteesifsorequiredbyafinancialinstitutionasacondition ofgrantinganyloanorotherfacilitytothecompany?
oShouldeachguaranteebejointandseveral/borneinthe percentagewhichtheshareholdingofthatshareholderbears tothetotalissuedshares?
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ENTRYANDEXITSTRATEGIES:TIPSANDTRAPS
Entry
Ordinarilyadmissionbynewshareholder occursbywayof:
oNewissueofsecurities
o transfer
ShareholdersAgreementsshouldsurvivea transferofshares,soincomingshareholder shouldexecuteadeedofaccession
ENTRYANDEXITSTRATEGIES:TIPSANDTRAPS
ExitStrategies
Transferofsharestoexistingornewshareholders
Firstandlastrightsofrefusal
Russianrouletteclause
Putandcalloptions
Dragalong/tagalongclauses
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ENTRYANDEXITSTRATEGIES:TIPSANDTRAPS
ExitStrategies2
Liquidityandrealisationevents
Sharebuybacks
Sellingbusiness
Restructuring
IPOstylefloats
Windingupthecompany
Dissolutionbycourtorder
QUESTIONS?
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AdamGoldner SpecialCounsel T+6162106222 Eagoldner@hwle.com.au
