Shareholders Agreement.

Drag-along and tag-along mechanics

Drag-along rights let a majority (commonly a defined threshold such as 75% of shares) force minority holders to sell into a genuine third-party offer on the same terms, so a buyer can acquire 100% of the company without a holdout blocking the deal. Tag-along rights protect minorities by letting them require an acquirer of a majority stake to buy their shares on the same price and terms rather than leaving them locked into a company with a new controller. Both clauses need precise triggers — percentage thresholds, what counts as an 'arm's length' offer, and how price is allocated between share classes — because loosely drafted triggers are where most drag/tag disputes start.

We also specify the mechanics of enforcement: whether a dragged shareholder's signature is required or whether the agreement appoints an attorney to execute the transfer on their behalf if they refuse, and how completion funds are held if a dissenting holder won't cooperate.

Pre-emptive rights and new issues

Pre-emptive rights require a shareholder who wants to sell, or a company proposing to issue new shares, to first offer them to existing shareholders pro rata to their holdings before going to an outsider. The clause needs to fix a notice period, a valuation mechanism if the price isn't already agreed (independent expert, last-round price, or a formula), and what happens to shares not taken up — do they lapse, get reoffered, or accrue to remaining takers. We also carve out standard exceptions: transfers to related entities, permitted family trusts, and issues under an approved employee incentive plan, so the mechanism doesn't accidentally catch internal restructuring.

Deadlock and dispute resolution

In a 50/50 or evenly split company, deadlock provisions decide what happens when the shareholders can't agree on a matter requiring their joint consent. Common mechanisms are a cooling-off period followed by escalation to senior management or an independent chair, then — if unresolved — a Russian roulette or shotgun clause (one party names a price, the other must buy or sell at it), a Texas shootout with sealed bids, or a forced sale to a third party with proceeds split. Each mechanism allocates leverage differently, and the choice should reflect which party is more likely to have the cash to buy the other out if it comes to that, not just what sounds fair in the abstract.

We also list the specific 'reserved matters' that trigger the deadlock clause — usually a defined list such as changing the business, taking on debt above a threshold, issuing shares, or removing a director — rather than leaving 'any disagreement' to invoke a nuclear mechanism over a minor dispute.

Vesting, leaver provisions and warranties

Vesting schedules apply mainly where a founder or key employee receives equity over time (commonly a four-year vest with a one-year cliff) and are tied to good leaver / bad leaver definitions: a good leaver (retirement, redundancy, death, incapacity) typically keeps vested shares and may be bought out at fair value, while a bad leaver (resignation within a period, dismissal for cause, breach of restraint) forfeits unvested shares and can be forced to sell vested shares at a discount or nominal value. Getting the good/bad leaver definitions precise matters more than the vesting percentages themselves, because that's where actual disputes happen when someone exits badly.

The agreement also carries warranties between shareholders — capacity to enter the agreement, no competing undertakings, title to the shares free of encumbrances — and indemnities allocating loss if a warranty is breached, usually capped and time-limited in the same way as warranties in a sale agreement.

Completion mechanics on any share transfer

Whenever shares actually move under the agreement — a pre-emptive sale, a drag-along, a deadlock buy-out — the document needs standalone completion mechanics: what's delivered (share transfer forms, share certificates, resignations if the seller is also a director), when payment is due, and what representations the seller gives on transfer (usually narrower than founder warranties, limited to title and capacity). We build these mechanics once and cross-reference them from every trigger clause, rather than drafting bespoke completion terms for each scenario, so nothing falls through a gap.

IP and moral rights where the company's value is founder-created

Where a shareholder has personally created IP used by the company — code, brand assets, content — the agreement should confirm that IP has been (or will be) assigned to the company under a separate deed, address moral rights consents under the Copyright Act 1968 (Cth) for any individual creator, and record ownership of improvements made after the founder leaves. We flag this expressly because a shareholders agreement alone doesn't transfer IP — an assignment deed does that work, and the shareholders agreement should simply require it exists and stays in place.

What the fixed fee covers

• Review of your existing constitution and identification of conflicts or gaps
• Full drafting of drag-along, tag-along and pre-emptive rights clauses
• Deadlock mechanism selection and drafting suited to your shareholder split
• Vesting and good leaver / bad leaver provisions for founder or key-employee equity
• Completion mechanics for every transfer trigger in the document
• One round of negotiation support with co-shareholders or their advisers

Mistakes we see

• Relying on the constitution alone and assuming majority vote can enforce exit terms
• Drag-along thresholds set so high a genuine buyer can't clear them
• No definition of 'fair value' for deadlock buy-outs, leaving it to litigation
• Vesting clauses with no bad leaver discount, so a resigning founder keeps full value
• Assuming IP is owned by the company without a signed assignment deed

Who this is for

• Founders bringing on a co-founder or early investor
• Family businesses formalising ownership between siblings or generations
• Companies issuing equity to key employees
• Existing shareholders replacing an outdated or missing agreement

Frequently asked questions

Do we need a shareholders agreement if we already have a constitution?

Yes, in almost every case with more than one shareholder. The constitution is a majority-amendable public document; the shareholders agreement is a private contract that can only be changed with the consent of the parties to it, which is where protections like drag-along and pre-emptive rights actually need to live.

What happens if the shareholders agreement conflicts with the constitution?

We draft the agreement to state expressly which document prevails between the parties to it, usually the shareholders agreement, while leaving the constitution to govern matters not addressed in the contract. Without that clause, a court has to resolve the inconsistency using general contract principles, which is slower and less predictable.

Can a shareholders agreement force someone to sell their shares?

Yes, through a properly drafted drag-along clause or a deadlock mechanism such as a shotgun clause, both of which we build with an enforcement mechanic (such as a power of attorney to execute on a non-cooperating shareholder's behalf) so the obligation isn't just theoretical.

How do good leaver and bad leaver provisions actually work?

They set different consequences depending on why a shareholder leaves — a good leaver (redundancy, incapacity, retirement) is typically bought out at fair value, while a bad leaver (resignation early, dismissal for cause) forfeits unvested equity and can be forced to sell vested shares at a discount. The definitions need to be specific to your situation rather than generic, since that's where disputes concentrate.

Does the shareholders agreement transfer IP to the company?

No. It should require that IP assignment exists and stays current, but the actual transfer of ownership happens under a separate IP assignment deed. We draft the two together where a founder has created IP personally before or during the company's life.

How long does drafting take?

Typically 7–10 business days once we have your constitution, shareholder split and commercial terms confirmed, with an additional round if there's negotiation between shareholders or their advisers.