Shareholder Agreement Clauses for SMEs: 5 Things That Matter More Than Most
Most people don’t think much about their shareholder agreement once it’s signed.
It usually gets done early, often quickly, and then sits in a folder somewhere while the business gets on with things.
The problem is, this document only really gets tested when something changes. A disagreement, someone wanting out, a shift in direction. That’s when people go back and read it properly and realise it doesn’t quite deal with the situation in front of them.
If you’re running a business with other owners, these are the clauses that tend to make the biggest difference when things stop being straightforward.
1. Deadlock Clauses: When No One Can Agree
A deadlock is exactly what it sounds like. Two shareholders with equal say, a decision that matters, and no agreement on what to do next.
We see this come up more often than expected, especially in businesses with two founders or equal ownership structures.
Without a clear process, decisions just stall. The business might still be trading, but anything important gets delayed or avoided.
A well-drafted deadlock clause usually sets out a pathway forward. That might involve a structured discussion process, bringing in a mediator, or creating a mechanism for one party to exit.
If you’ve ever wondered what happens when business partners cannot agree, this is the part of the agreement that answers that question.
You can read more about how these situations unfold in our blog on shareholder disputes between business partners
2. Exit Clauses: When Someone Wants to Leave
At some point, someone will want to step away from the business. That might be planned, or it might come out of nowhere.
Where there is no clear exit pathway, things can get complicated quickly. Questions come up about who they can sell to, how the sale works, and whether the remaining owners have any say.
A shareholder agreement should deal with this in a practical way. It should set out when shares can be sold, who gets the first opportunity to buy them, and how the process is handled.
Without that clarity, you can end up in a situation where a new shareholder enters the business unexpectedly, or where the person leaving and the person staying have very different ideas about what should happen next.
3. Valuation Clauses: What Are the Shares Worth
This is one of the most common sticking points when someone exits.
People often assume they will work out the value at the time, but that tends to be where disagreements start. One party looks at future growth, the other looks at current revenue, and the gap between those views can be significant.
A valuation clause gives you a starting point before those conversations happen. It might include a formula, or it might require an independent valuer. Either way, it removes a lot of uncertainty at a time when things are already under pressure.
For many SME owners searching how to value shares in a private company, this is where the answer usually sits.
4. Unexpected Events: Illness, Death or Incapacity
Not every change in ownership is planned.
If a shareholder passes away or becomes unable to work in the business, their shares don’t just disappear. They form part of their estate, which can lead to outcomes the remaining shareholders did not expect.
We’ve seen situations where family members inherit shares but have no involvement in the business, or no intention of being involved. That can create tension around decision making and direction.
A shareholder agreement can deal with this by setting out what happens to those shares, whether they can be bought back, and how that buy-out is funded.
This often links closely with estate planning for business owners, especially where the business is a significant asset.
5. Decision-Making Rules: Who Decides What
In the early stages of a business, decisions are often made informally. That works for a while, but as things grow, it becomes less clear who has authority to make certain calls.
A shareholder agreement can bring structure to that.
It should set out which decisions need everyone to agree, and which can be made by a majority. It can also clarify who is responsible for day-to-day management.
Without that, disagreements about control tend to build slowly in the background until they become harder to resolve.
A Situation That Comes Up Often
Two founders run a business for years without any major issues. They trust each other and make decisions easily.
As the business grows, the stakes get higher. One wants to expand into new areas, the other is more cautious.
They go back to their shareholder agreement and realise it doesn’t really deal with what happens if they can’t agree, or how one of them could exit if needed.
At that point, the options are more limited than they would have been earlier.
When People Usually Look Into This
Most business owners don’t start by searching for a shareholder agreement.
They search when something has already started to shift. A disagreement, a change in priorities, or a sense that the current setup no longer fits how the business is operating.
Search terms tend to look like:
shareholder dispute between business partners
how to remove a shareholder
how to exit a business partnership Australia
Those searches usually come from a real situation, not just general interest.
How This Connects to Other Legal Areas
Shareholder agreements tend to overlap with other parts of running a business.
For example:
bringing in or removing owners often connects with buying or selling a business
key employees leaving can raise questions around restraint of trade clauses in NSW
long-term planning links back to business succession and estate planning
If employee exits are part of what you’re dealing with, this blog on restraint of trade clauses in NSW is a useful place to start.
Need Help Reviewing a Shareholder Agreement
If you have more than one owner in your business, this is one of those documents that is worth revisiting from time to time.
We usually get involved when:
an agreement no longer reflects how the business operates
there is uncertainty around exits or decision making
a shareholder dispute has started to develop
We help business owners review and update shareholder agreements so they are clear, workable, and aligned with how the business actually runs.
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