Skip a Shareholders Agreement and Expose your Business to Costly Risks

No shareholders agreement means future conflicts are guaranteed.

Starting a business with co-founders can feel like a dream team — until it’s not. Without a clear agreement, even small disagreements can spiral into legal battles that drain time, trust, and money.

This is your founder agreement (Australia) playbook — an equity agreement for founders that sets expectations early and protects the business when pressure hits.

Canva — The Shareholders Agreement That Protected the Founders' Vision

When Melanie Perkins and the Canva founding team raised their early rounds, they structured a shareholders agreement that:

• Locked in voting control for the founders

• Included vesting schedules for equity

• Allowed them to maintain their vision, even after raising hundreds of millions

That agreement ensured the company couldn’t be taken over or redirected by early investors — and let them scale Canva into a $40+ billion business on their own terms.

Without those protections, Canva could’ve easily been pulled apart by investor interests, early-exit temptations, or co-founder disputes. The shareholders agreement kept the leadership aligned, even as equity diluted.

Drafting a shareholders agreement isn’t just paperwork. It’s your insurance policy for when things get hard. Here’s how to draft one that protects your business — and your relationships — from day one.

What Is a Shareholders Agreement?

A shareholders agreement is a private contract for the owners of a company—and often the company itself—that sets the rules for ownership, control, decision-making, exits, and dispute resolution.

It is different to a company’s constitution: the constitution is the company’s public rulebook under the Corporations Act (binding the company and all members automatically), while a shareholders agreement is a private deal between the signing shareholders (and usually the company); new shareholders are bound only when they sign a Deed of Accession.

The two documents should align, but the shareholders agreement is where the commercial deal lives (vesting, transfer controls, leaver terms, drag/tag, etc.).

Who uses it in practice:

• Founders/co-founders holding shares in a Pty Ltd company

• Early investors (angels, seed funds, VCs) who buy shares

• Employee shareholders (or option holders who exercise), bound via a Deed of Accession

• The company as a party, so it can enforce obligations (e.g., IP assignment, information rights)

It’s not for sole traders or partnerships (no shares), and it’s often overkill for a single-shareholder company (your constitution may be enough). Where there’s more than one shareholder, this agreement binds current signatories (and future ones via accession) and sets rules on vesting, share transfers (pre-emptive rights/ROFR/ROFO), drag-along/tag-along, deadlock and dispute resolution, governance, and exits.

Legally, a shareholders agreement isn’t required by law, but it’s essential for startups with more than one shareholder because it covers the commercial “what ifs” your constitution won’t.

TOPIC	Company Constitution	Shareholders Agreement (SHA)
Purpose	Company rulebook (governance “plumbing”).	Private contract for the commercial deal.
Who it binds	Company and all shareholders automatically (by law).	Only signatories (plus newcomers via Deed of Accession).
Public vs Private	More accessible / may be lodged.	Private; not filed with ASIC.
Typical content	Directors, meetings, share classes, issues/redemptions, dividends.	Pre-emptive/ROFR, drag/tag, vesting, leaver rules, deadlock/disputes, info rights, valuation, ESOP.
Amending	Special resolution (~75%).	As agreed (often unanimous or supermajority).
New shareholders	Automatically bound on becoming a member.	Must sign Deed of Accession to be bound.
If documents conflict	Constitution governs until amended.	SHA should require parties to amend constitution to align.
Use it when	At incorporation (always).	Whenever >1 shareholder and/or investors involved.

What it usually covers:

• ✓ Who owns what (share classes and percentages)

• ✓ What happens if someone wants out (exit and transfer clauses)

• ✓ How decisions are made (voting rights, reserved matters, board roles)

• ✓ What happens in a deadlock (staged dispute resolution and buy-sell mechanics)

• ✓ Rights to buy/sell shares (pre-emptive rights, ROFR/ROFO, drag/tag)

Without it, you’re relying on trust and verbal agreements — and those won’t hold up when the pressure’s on.

When to Use Which (and How They Work Together)

• You need a Constitution at incorporation (or you rely on replaceable rules). It governs the corporate plumbing.

  
  

• You want a Shareholders Agreement whenever there is more than one shareholder (founders, investors, employee holders). It captures the deal: vesting, exits, transfer controls, dispute processes.

  
  

• Best practice: Draft the SHA first (commercial deal), then align the Constitution so there’s no mismatch. Add a Deed of Accession template to onboard any new shareholder.

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Why It Matters (and What Can Go Wrong Without One)

Here’s why every founder I’ve worked with either has — or regrets not having — a solid shareholders agreement:

Prevents Future Legal Battles

I’ve seen startups implode over disagreements that could’ve been prevented with a two-page clause. This agreement sets the rules before emotions get involved.

Protects Against Unwanted Investors

Without pre-emptive rights, your co-founder could sell their shares to anyone — even a competitor.

Makes Exits and Buyouts Smoother

If someone leaves the company, the agreement determines how and when they get paid out. Otherwise, expect disputes, delays, and drama.

Builds Investor Confidence

Professional investors want to know you’ve handled governance properly. A clear shareholders agreement shows you're serious.

Saves Friendships

Let’s be real — even the best relationships can strain under startup pressure. A fair agreement can preserve respect, boundaries, and clarity when things shift.

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What You’ll Need Before You Start

Before you sit down to draft anything, gather the following:

✓ Company structure details (who owns what)

✓ Share classes (ordinary, preference, etc.)

✓ Cap table (existing and proposed shareholdings)

✓ Roles and responsibilities of each founder

✓ Your company constitution (if you have one)

✓ Scenarios to plan for: exits, disputes, dilution, death/disability

Being clear on these now will make your legal drafting faster, cheaper, and more effective.

How to Draft a Shareholders Agreement:

Step-by-Step

Step 1: Start the Conversation Early

Talk to your co-founders about expectations, values, and “what if” scenarios.

Mentor Tip: The best agreements are born from honest discussions, not just legal templates.

Step 2: Decide What Goes In —

Pre-emptive, ROFR, Drag/Tag, Vesting, Deadlock

Key sections usually include:

• Share structure & ownership (classes, rights, % holdings)

• Voting rights & major decisions (reserved matters)

• Board makeup & appointment rules

• Share transfers & restrictions (pre-emptive rights, ROFR/ROFO)

• Drag-along & Tag-along (sale mechanics)

• Exit rules (sell, resign, death, disability)

• Good/bad leaver & vesting mechanics

• Dispute resolution & deadlock (see section below)

• ESOP & option pool (size, approvals, dilution)

• Valuation & buy-back rules

• Deed of accession & amendment thresholds

Pro Tip: Use a lawyer who specialises in startups. Generic templates won’t reflect the complexities of equity, vesting, or founder rights.

Step 3: Consider Vesting Schedules

Founder vesting is crucial. It means shares are earned over time — protecting the business if someone leaves early.

Example — 4-year vesting with 1-year cliff:

• You don’t get any shares until you’ve stayed in the business for 12 months.

• Once you hit that 1-year mark, you get 25% of your shares all at once.

• After that, the rest of your shares get released monthly over the next 36 months.

Think of it as “earning your ownership over time” — it protects the business if someone leaves early.

Step 4: Draft with Legal Support — Align Constitution & Governance

Use your initial discussion as a brief, then work with a startup lawyer to draft a document tailored to your business. Ensure alignment with your company constitution to avoid conflicts. If there’s a clash, specify which document prevails for particular matters.

Step 5: Review, Sign, and Store — Plus Deed of Accession

Have all parties review it, make amendments, then sign. Store a copy digitally and physically.

• Include counterparts and electronic execution clauses.

• Get deeds of accession signed by any new shareholders.

• Update the cap table and issue/share transfer documentation immediately.Mentor Tip: Revisit your agreement annually — especially after funding rounds or team changes.

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What It Costs and How Long It Takes

Here’s what you can expect in Australia:

• DIY Templates (not recommended): Free–$300

• Startup Lawyer Draft: $1,500–$5,000

• Custom Agreements for Funded Startups: $5,000–$10,000+

• Timeframe: 2–6 weeks depending on complexity

Money-Saving Tip: Agree on key terms before going to a lawyer. You’ll save hours of billable time.

Common Mistakes Founders Make

Mistake 1: Delaying Until There’s a Problem

By the time issues arise, it’s often too late. Agreements must be made early — not in conflict.

Mistake 2: Using a Generic Template

I’ve seen founders copy U.S. templates that don’t apply to Aussie laws. Use a local, tailored approach.

Mistake 3: Forgetting Vesting Clauses

Without vesting, a co-founder can walk away with equity on Day 1. Huge risk.

Mistake 4: Not Updating After Investment

Funding changes your cap table — and possibly voting rights. Update your agreement accordingly.

Mistake 5: Not Outlining a Dispute Resolution Process

Should any disagreements arise, having a clear process for solving these will prove very valuable in time, money and relationships.

Most founders only realise these mistakes after they’ve already lost equity, relationships, or both. A shareholders agreement isn’t about trust — it’s about protecting what you’re building when trust eventually gets tested. Get it in writing, or pay for it later.

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What to Do Right Now

Here’s your action plan:

✅ Don’t want to manage this yourself? Book a session with Noize — they’ve helped dozens of founders build smart, scalable systems across every part of their business, so they can grow with clarity and confidence. [Noize.com.au]

✅ Want the full toolkit? Grab the Startup Deck — your step-by-step roadmap for building a sound and fundable business from Day 1.

COMING SOON in 2026...

✅ Download: from the digital library of checklist, templates and resources from Prodesk.com — free tools that outline what to include in your documentation.

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The Bottom Line

No one starts a company expecting conflict. But great founders prepare anyway. A shareholders agreement doesn’t just protect your equity — it protects your relationships, your momentum, and your peace of mind. It’s not a cost. It’s a safeguard.

Get it done now — before you wish you had.

FAQ — Frequently Asked Questions (FAQs)

Do I legally need a shareholders agreement in Australia?

No, it’s not legally required — but it’s highly recommended. A shareholders agreement helps prevent disputes, clarify expectations, and protect equity ownership from Day 1.

What’s the difference between a shareholders agreement and a company constitution?

A company constitution sets out broad company rules and is often public. A shareholders agreement is a private contract between shareholders that governs specific ownership rights, decision-making, and exit scenarios. They should align.

Should startup founders include vesting in a shareholders agreement?

Yes — vesting protects your startup from a co-founder walking away with unearned equity. A common approach is a 4-year vesting schedule with a 1-year cliff.

Can we use a free template for our shareholders agreement?

It’s not recommended. Generic templates often miss critical details (like exit rules, dilution, or dispute resolution) and may not comply with Australian laws. Customisation by a startup lawyer is worth the investment.

When should we update our shareholders agreement?

Anytime your business changes significantly — such as a funding round, a new co-founder, a new class of shares, or a restructure — your agreement should be reviewed and updated.

What are drag-along and tag-along rights?

Drag-along allows a selling majority to require minority shareholders to sell on the same terms so a sale can complete.

Tag-along lets minority holders join a sale to avoid being left behind.

What is a good leaver vs bad leaver clause?

It sets how departing founders’ shares are treated (and priced) depending on why they leave — e.g., “good leaver” at fair value vs “bad leaver” at cost.

How do we handle deadlock?

Use a staged process: negotiation → mediation → expert determination → casting vote → buy-sell shotgun → last-resort wind-up. Timeframes and notices should be explicit.

How do new shareholders get bound by the agreement?

Through a deed of accession — they sign to become a party to the agreement on the same terms.

General information only — obtain advice from an Australian lawyer experienced in startups and venture deals for your circumstances.