Shareholder voting rights and shareholder agreements help define how important company decisions are made. Understanding how they work together can provide clarity, protect stakeholder interests and support effective governance.

 

who makes company decisions?

 

From day‑to‑day governance to major corporate changes, company decisions are made by directors and shareholders through resolutions, depending on the decision’s nature and significance.

As a general rule, directors are responsible for the day‑to‑day management of the company and make operational and commercial decisions.

Shareholders are involved less frequently, usually only when the law or the company’s governing documents require their approval.

 

when do shareholders make decisions?

 

Ultimately, the allocation of decision‑making power and voting rights is governed by the Corporations Act 2001 (Cth) and the company’s constitution.

Certain decisions must be approved by shareholders under law. These include matters such as amending the company’s constitution, changing the company name, capital reductions, selective buy‑backs and winding up the company.

In addition to these legislated matters, shareholders can agree that other key business decisions require shareholder approval.

These additional matters, and the approval thresholds that apply to them, can be set out in the shareholders agreement.

Even where a shareholders agreement requires shareholder approval for certain decisions, directors must continue to act in accordance with their statutory and fiduciary duties under the Corporations Act 2001 (Cth).

 

shareholders agreements

 

A shareholders’ agreement is a legal document that sets out the relationship between shareholders and directors of a company, and is the fundamental rulebook that shareholders and directors should refer to when making any decision about the company.

A shareholders’ agreement can require shareholders to approve certain key decisions, including:

  • Share capital and ownership matters such as:
    • issuing new shares or other securities
    • creating or varying share classes
    • transferring shares [including approval of new shareholders]
    • enforcing pre‑emptive rights on share issues or transfers
    • approving drag‑along or tag‑along events
  • Major transactions and strategic decisions such as the sale of all or a substantial part of the company’s business or assets.
  • Financial commitments and risk allocation such as entering into contracts above an agreed monetary threshold.
  • Board and governance matters:
    • board composition
    • approval of key management appointments [such as CEO or CFO]
  • Minority shareholder protections.
  • Related‑party transactions.
  • Exit and deadlock arrangements.

 

shareholder voting rights + resolutions

 

Shareholder voting rights are generally assigned to the number of shares; however, this is dependent on the share structure and share class.

The number of votes required to pass a shareholder’s resolution is set out in the shareholders agreement.

The three main types of resolutions with specific voting requirements attached are:

  1. Ordinary Resolution [50% or more of the total votes present and entitled to vote];,
  2. Special Resolution [75% or more of the total votes present and entitled to vote], and
  3. Unanimous Resolution [100% of the total votes present and entitled to vote].

While the below unpacks the standard decision-making approach, a shareholders agreement can be specifically tailored to suit any circumstances.

 

key takeaway

 

A well‑drafted shareholders agreement helps reduce the risk of disputes, minimises uncertainty around decision‑making, and provides clear exit mechanisms if circumstances change.

Having a shareholders agreement in place ensures that shareholders and directors are aligned on how the company is governed and how key decisions are made.

 

we’re here to help!

Not sure whether your shareholders agreement has been prepared with your business in mind? Reach out to the businessDEPOT legal team for a complimentary review.

 

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general advise disclaimer

The information provided in this booklet is a brief overview of the subject matter and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however, information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision and should consult an appropriate professional before making any decision.

 

Originally published on November 1, 2021.