In short: Sign a shareholders agreement while the founders still agree; the Corporations Act 2001 fallback is a court application. The five clauses that matter are decision thresholds, deadlock, drag and tag, vesting and exit.
What happens without one
A company with no shareholders agreement runs on its constitution or the replaceable rules in the Corporations Act 2001. Those rules decide most things by a simple majority of votes. They say nothing about a founder who stops working, a co-founder who wants out, or an investor who wants in. When the founders fall out, the only remedy left is the oppression provisions of the Act. That is a court process, and it is slow and public.
We see the same pattern in our commercial practice. Two people start a business, split the shares evenly, and agree to sort out the paperwork later. Later arrives with the first serious disagreement. The agreement is then negotiated between parties who no longer trust each other.
Decision thresholds
The Act sets two thresholds by default. An ordinary resolution needs more than half the votes. A special resolution needs 75 percent, and is required to change the constitution. A shareholders agreement adds a third layer: reserved matters. These are decisions that need a higher majority, or every shareholder, whatever the shareholding.
Typical reserved matters include issuing new shares, borrowing above a limit and selling the business. Changing the nature of the business and appointing or removing directors are also usual. The list should be short. A long list of unanimous matters gives every shareholder a veto over the ordinary running of the company.
Deadlock
A deadlock clause answers one question: what happens when the vote is tied and no one moves. Equal founders need one. The usual ladder is negotiation between the founders, then mediation, then a mechanism that forces an outcome. The forcing mechanisms have colourful names. A shotgun clause lets one founder name a price at which they will either buy or sell. A casting vote gives one director the final say on defined matters. An independent chair breaks ties on the board. Each has a different effect on control, so the choice is a commercial one.
Drag and tag
A drag-along right lets a majority accept an offer for the whole company. The minority must then sell on the same terms. It gives a buyer a clean acquisition. A tag-along right is the mirror. If the majority sells, the minority can join the sale on the same terms. Together they stop a majority from selling control and leaving the minority behind. They also stop a minority from blocking a sale. We set the drag threshold high enough that the minority is not dragged by a bare majority.
Vesting and leaver provisions
Founders often issue all shares on day one. Vesting fixes the problem of a founder who leaves after six months holding half the company. The shares vest over a period. Unvested shares can be bought back at a low price if the founder leaves. Good leaver and bad leaver terms set the price. A founder who leaves through illness is a good leaver. A founder dismissed for misconduct is a bad leaver. The agreement should define both terms carefully, because that definition decides the price.
Where a founder holds a temporary visa, the vesting and leaver terms interact with the visa. A founder who must leave Australia may become a leaver through no fault of their own. Read our note on business structures for founder visa holders before setting those terms.
Exit
An exit clause sets how a shareholder sells and to whom. Pre-emptive rights give existing shareholders first refusal on any sale. A valuation mechanism, usually an independent accountant, sets the price where the parties cannot agree. Some agreements add a put or call option on death, permanent incapacity or bankruptcy. Insurance can fund the buyout. Without these terms, a founder's estate can become an unwilling shareholder.
Which terms fit your table?
How are the founders' shares split?
Clause summary
| Clause | Question it answers | Who it protects |
|---|---|---|
| Reserved matters | Which decisions need more than a majority | Minority |
| Deadlock | What happens when the vote is tied | Both founders, and the company |
| Drag-along | Can the majority deliver a whole-company sale | Majority and buyer |
| Tag-along | Can the minority join a sale of control | Minority |
| Vesting and leaver | What a departing founder keeps | Remaining founders |
| Exit and pre-emption | How and to whom a shareholder sells | All shareholders |
Three questions before drafting
Should the terms sit in the constitution instead?
The constitution binds everyone and is available on request. The agreement is private and can bind people the constitution cannot, such as key employees. Most companies use both, with the agreement prevailing on conflict.
Does a share transfer attract duty in Victoria?
Victoria no longer charges duty on ordinary share transfers. Landholder duty can apply where the company holds Victorian land above the threshold, so check before a buyout.
Should the shareholder be the founder personally or a family trust?
Often a trust, for asset protection and later distribution. The agreement then needs a clause requiring the trust's controller to remain the same person, or the leaver terms fail.
Where to start
Our commercial practice drafts shareholders agreements on a fixed fee once the term sheet is settled. We start with a one-page term sheet covering the six clauses above. That page is where the founders find out whether they agree. For premises and exits, read our lease checklist and the note on selling a business. To book, contact us.
Frequently asked questions
Do two equal founders really need a shareholders agreement?
Yes. Equal founders are the group most exposed to deadlock, and the Act gives them no way out of a tie.
Can we sign the agreement after we take investment?
You can, but the investor will then set the terms. Founders who sign first negotiate from a stronger position.
What is the difference between a good leaver and a bad leaver?
A good leaver exits for reasons like illness and keeps vested shares at fair value. A bad leaver exits through misconduct and sells at a lower price.
Does the shareholders agreement override the constitution?
Only if it says so. We include a clause that the agreement prevails between the shareholders where the two conflict.
This article relies on the Corporations Act 2001 and the Duties Act 2000 (Vic).
General information as at 2 September 2026. Not legal advice. The right terms turn on your own facts and your co-founders, so obtain advice before signing.