Shareholder Agreement Checklist for Co-Buying a Business in Australia

The Complete Shareholder Agreement Checklist for Co-Buying a Business in Australia

Use this checklist when reviewing a draft shareholder agreement prepared by your solicitor, or as a brief for your lawyer when commissioning the document. It's structured around the eight core areas that matter most in a business acquisition context — not a startup context.

Work through each section before execution. Items marked as critical are the provisions most likely to create problems if left ambiguous or absent.

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Section 1: Ownership and Equity Structure

• Shareholding percentages confirmed and documented. Each party's percentage is explicitly stated and matches the company's share register.
• Capital contributions recorded. The amount each shareholder contributed to the purchase price (equity component) is documented, including whether contributions were equal or asymmetric.
• Share classes defined (if applicable). If ordinary and preference shares are used, the rights attached to each class are clearly set out.
• Shareholder loans documented separately. If either party has lent money to the company rather than contributed equity, the loan terms (interest, repayment schedule, ranking against other creditors) are documented in a separate loan agreement or within the shareholder agreement.
• Treatment of future capital calls agreed. If the business needs more equity, the process for deciding the amount, timing, and each party's obligation to contribute is pre-agreed. Include what happens if one party cannot or will not contribute (e.g., dilution of their shareholding or the contributing party advancing a shareholder loan).

Critical: Asymmetric capital contributions should be explicitly acknowledged. If one party contributed 60% of the equity, that fact should be documented even if the equity split is 50/50 by agreement — otherwise it can become a disputed point later.

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Section 2: Director Roles and Management Authority

• Directors appointed and confirmed. The agreement specifies who are the initial directors and any restrictions on appointing additional directors.
• Operational authority defined. One director or the operating partner is granted authority to make day-to-day decisions up to a defined dollar threshold (e.g., expenditure under $10,000) without requiring the other party's sign-off.
• Reserved matters list included. Decisions that require unanimous shareholder approval are listed explicitly. Typical reserved matters: selling the business, acquiring significant assets, taking on debt above a threshold, changing the business's core activities, appointing or terminating senior staff.
• Casting vote or tie-breaking mechanism. In a 50/50 shareholding structure, the agreement specifies how deadlocked decisions are resolved — whether by a casting vote for the chair, a cooling-off period, or a referral to the dispute resolution process.
• Management fee arrangements (if applicable). If one party is paid a management fee in addition to or instead of a salary, the basis and amount are documented.

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Section 3: Salary, Drawings, and Profit Distribution

• Working partner's salary explicitly agreed. If one shareholder is working in the business full-time and the other is not, the working shareholder's salary is set out in the agreement — not left to annual board approval.
• Salary review mechanism included. How and when the working partner's salary is reviewed (e.g., annually, indexed to CPI, by unanimous director approval).
• Dividend policy agreed. Whether and when dividends are paid, and the basis for determining the amount (e.g., a minimum percentage of net profit after debt service, or by unanimous shareholder resolution).
• Drawings policy defined. The process for shareholder drawings — whether permitted, at what level, and subject to what approval — is documented.
• Franking credit entitlements. The agreement addresses how franking credits on dividends are allocated, particularly if one shareholder is in a trust or SMSF structure with different tax treatment.

Critical: In a co-bought trades business where one partner operates the business daily and the other is passive, the salary provision is the most common source of disputes. Set it before you settle, not after.

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Section 4: Financial Transparency and Reporting

• Reporting frequency agreed. The operating partner or company agrees to provide financial reports to all shareholders — monthly management accounts, quarterly summaries, annual financial statements — at specified intervals.
• Access to accounts and bank statements. Passive shareholders have the right to inspect the company's financial records at any time with reasonable notice.
• Annual budget process. An annual budget or business plan is prepared and approved by all directors before the start of each financial year.
• Audit or review requirements. Whether the company's accounts are audited or reviewed, and by whom, is documented.
• Banking authority limits. Bank signatories are defined, including any dual-authority requirements for transfers above a threshold.

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Section 5: Dispute Resolution

• Dispute resolution process specified. The agreement includes a tiered process: direct negotiation first, then mediation with a nominated mediator or body (e.g., Resolution Institute of Australia), then binding arbitration if mediation fails.
• Deadlock definition included. What constitutes a formal deadlock — how many failed votes on a reserved matter over what period — is defined, triggering the dispute resolution process.
• Dispute resolution costs. The agreement specifies how the costs of mediation or arbitration are shared.
• Business continues during dispute. A provision that the business continues to operate normally during a dispute unless a court or arbitrator orders otherwise.
• No self-help remedies. A prohibition on either party taking unilateral action (e.g., removing a signatory from the bank account, locking the other out of systems) pending resolution of a dispute.

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Section 6: Exit Provisions and Buy-Sell Mechanism

• Transfer restrictions confirmed. Neither party can transfer their shares to a third party without first offering them to the other shareholder(s) on the same terms (right of first refusal).
• Buy-sell / shotgun clause included. The mechanism by which one party can force a buyout — typically the shotgun clause, where one party names a price and the other must buy or sell at that price — is clearly described.
• Valuation methodology agreed. How the business is valued in the event of a forced sale or buyout is pre-agreed (e.g., by independent valuation, by EBITDA multiple, or by the shotgun mechanism).
• Permitted transfers identified. Transfers to related parties (spouse, family trust, associated company) that are permitted without triggering the right of first refusal are listed.
• Drag-along rights included. If a majority shareholder wants to sell to a third party, the minority shareholder can be required to sell their shares on the same terms.
• Tag-along rights included. If the majority shareholder sells to a third party, the minority shareholder has the right to participate in the sale on the same terms.
• Death or incapacity provision. What happens to shares if a shareholder dies or becomes permanently incapacitated — including whether shares pass to the estate or are subject to a compulsory buyout.
• Funding mechanism for forced buyout. The agreement contemplates how a buyout is funded — whether by the purchasing shareholder's own funds, refinanced bank debt, or insurance proceeds.

Critical: The death/incapacity provision and insurance funding mechanism are the provisions most co-buyers overlook. Confirm with your financial adviser whether life and total permanent disability (TPD) insurance is in place and structured to fund a buyout.

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Section 7: Non-Compete and Restraint Provisions

• Post-departure non-compete period. If a shareholder exits, the period during which they cannot operate a competing business is defined — typically 12 to 24 months.
• Geographic scope of restraint. The geographic area covered by the non-compete clause is defined and reasonable (i.e., the actual area where the business operates, not the whole of Australia).
• Non-solicitation of staff and clients. A departing shareholder is prohibited from poaching employees or clients for the restraint period.
• Carve-outs defined. Any activities the departing shareholder is permitted to undertake are explicitly listed.
• Restraint cascades. Australian courts tend to enforce the most reasonable version of a restraint clause. Cascading provisions — multiple combinations of time and geography, any of which is valid if the longer/broader ones are struck down — increase enforceability.

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Section 8: Insurance and Funding Provisions

• Life insurance requirement. Each shareholder is required to maintain life insurance at a minimum level (typically equal to their proportionate share of the business's agreed value) to fund a buyout in the event of death.
• TPD insurance requirement. Total permanent disability insurance is required alongside or in addition to life insurance.
• Policy ownership structure. The structure under which policies are held — cross-ownership between shareholders, or ownership by the company — is agreed and consistent with the buy-sell mechanism.
• Premium responsibility. Who pays the insurance premiums is documented (typically each shareholder pays their own, or the company pays and the cost is allocated accordingly).
• Annual review of cover. The agreement requires annual review of insurance cover to ensure it remains adequate as the business grows or as the agreed value changes.

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Pre-Execution Checklist

Before both parties sign the shareholder agreement:

• Both parties have obtained independent legal advice on the agreement (not just reviewed it — obtained advice from separate solicitors).
• The shareholder agreement is consistent with the company's constitution. Where there is any conflict, the shareholder agreement should prevail between the parties.
• The agreement is signed before or simultaneously with the settlement of the business acquisition — not after.
• Copies are held by both parties, both solicitors, and the company secretary.
• Key provisions (particularly the buy-sell mechanism and operational authority thresholds) have been explained in plain English to both parties before signing.
• The agreement is reviewed and updated whenever there is a material change in the business (significant increase in turnover, additional borrowings, change in business activities) or in either shareholder's personal circumstances.

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Related resources:

• Company vs Trust Checklist — choosing your entity structure before you buy
• Deal Structure Comparison Framework — comparing co-buyer structure options
• Personal guarantee implications — what you're signing when the bank asks for a guarantee
• Trust structure for the acquisition — when a trust makes sense over a company

This checklist is for informational purposes and does not constitute legal advice. Have your shareholder agreement drafted and reviewed by a qualified Australian solicitor.