When Would I Need A Shareholders And Unitholders Agreement?

If you’re launching a business with co-founders, taking on investors or building a unit trust structure, one of the smartest early moves is to put the right owner agreements in place.

These are the documents that set the rules for how decisions are made, how equity is issued or transferred, what happens if someone wants out, and how disputes are resolved.

In Australia, company owners use a Shareholders Agreement and trust investors use a Unitholders Agreement. They’re similar in purpose, but apply to different structures.

In this guide, we’ll explain what each agreement does, when you’ll need one, the key clauses to cover, how they interact with constitutions and trust deeds, and the practical steps to get them signed the right way.

What Do Shareholders And Unitholders Agreements Do?

At a high level, both agreements set the ground rules for the owners of a business.

A Shareholders Agreement applies to a company. It records how the shareholders and directors will run things, how shares can be issued or sold, and what happens in common scenarios like new funding, a founder exit or a dispute.

A Unitholders Agreement applies to a unit trust. It plays a similar role, but refers to “units” and interacts with the trust deed. It covers distributions to unitholders, transfers, governance and decision-making at the trustee level.

Think of these agreements as your business’s relationship handbook. They help prevent misunderstandings, reduce the risk of deadlocks, and provide a clear playbook when something big changes-good or bad.

When Do You Need One?

You technically can run a company or unit trust without these agreements, but it’s risky. You’ll want one in place at any point where the arrangement between owners could change or become complex. Common triggers include:

• Starting with co-founders: Before you issue any equity, agree on roles, decision-making thresholds and what happens if someone leaves early.
• Bringing on an investor: Whether it’s friends and family, an angel or a fund, investors will expect clear pre‑emptive rights, protections and an exit path.
• Creating different classes of equity: If you plan on different voting or dividend rights (for example, founder ordinary shares versus investor preference), put the rules in writing.
• Team equity or vesting: If employees or contractors are getting equity over time, your owner agreement and related documents should set the vesting and leaver mechanics.
• Planning for exits: Mergers, acquisitions, buy‑backs or founder departures go much smoother when drag/tag rights, valuation methods and transfer rules are agreed early.
• Preventing stalemates: 50/50 businesses or closely held unit trusts need deadlock resolution pathways to avoid paralysis.
• Family or related-party ownership: Clear processes reduce the chance of personal disputes spilling into the business.
• Scaling or restructuring: New subsidiaries, licenses or major contracts often prompt a refresh of governance and consent thresholds.

If you recognise one or more of these situations, that’s a strong sign you should prioritise a Shareholders Agreement or a Unitholders Agreement before moving forward.

Shareholders Agreement vs Constitution Or Trust Deed: Do You Need Both?

Yes-generally you’ll have both, and they do different jobs.

A company’s Company Constitution sets the default internal rules, like how meetings are called, director powers and issuing shares. It binds the company, directors and shareholders as a matter of company law.

A Shareholders Agreement is a private contract between owners (and often the company) that goes deeper into commercial terms-things like pre‑emptive rights, vesting, drag/tag, anti‑dilution and founder obligations.

For trusts, the trust deed is the core instrument that creates and governs the trust. A Unitholders Agreement then sets out how unitholders will make decisions, transfer units, fund the trust and resolve disputes, in a way that complements (and does not contradict) the deed.

In short: the constitution or trust deed is the legal skeleton; the owner agreement is the muscles, tendons and operating instructions.

Key Clauses To Consider In Australia

Owner agreements can be tailored to your goals, but most robust documents will address the following areas.

Ownership, Classes And Issuing Equity

• Share or unit classes: Clarify voting, dividend/distribution and liquidation rights for each class. If you’re weighing up classes, this overview of different classes of shares can help frame your options.
• New issues and pre‑emptive rights: Give existing owners the right to participate in new issues to avoid unexpected dilution.
• Valuation and price mechanics: Set a clear method for pricing new issues and transfers (e.g. independent valuation, formula or board‑set price with safeguards).

Decision‑Making And Governance

• Reserved matters: Define which decisions require board approval, a simple owner majority or a special majority (e.g. issuing new shares/units, major contracts, debt, changing the constitution or deed).
• Board composition: Who appoints directors or trustee representatives, and when those appointments can change.
• Information rights: Regular financial reporting and access to records keep everyone aligned.

Transfers, Exits And Liquidity

• Pre‑emptive rights on transfers: Existing owners typically have first refusal to buy before a third party does.
• Drag‑along and tag‑along: Drag‑along lets a majority force a sale on the same terms so buyers can acquire 100%; tag‑along lets minorities join a sale by the majority on equal terms.
• Permitted transfers: Specify transfers to affiliates or family trusts, and conditions that must be met.

Founder And Team Equity Protections

• Vesting and leaver terms: Time‑based or milestone vesting encourages long‑term commitment and protects the business if someone leaves. A tailored Share Vesting Agreement usually sits alongside your owner agreement.
• Good leaver vs bad leaver: Different outcomes depending on why someone departs (for example, resignation vs serious misconduct).
• Options and ESOPs: If you’re issuing options, align your owner agreement with your Employee Share Option Plan so the rules match across documents.

Funding, Dividends And Distributions

• Capital calls or loans: Will owners be required (or able) to contribute additional funds? On what terms?
• Dividends/distributions: State the policy and any thresholds to reduce friction when cash starts to flow.

Restraints, IP And Confidentiality

• Non‑compete and non‑solicit: Reasonable restraints protect the business while remaining enforceable under Australian law.
• IP assignment and confidentiality: Ensure all intellectual property created for the business is owned by the company or trustee, and stays confidential.

Deadlock And Dispute Resolution

• Deadlock process: Escalation to an independent chair, mediation and (only if needed) buy‑sell mechanisms or put/call options.
• Governing law and jurisdiction: Confirm the agreement is governed by Australian law, and specify the state or territory.

Common Events That Trigger An Update (Or Deed Of Accession)

Your agreement shouldn’t be “set and forget.” Revisit it when the ownership base or strategy changes. Typical triggers include:

• New investor or team member joins: They’ll generally sign a Deed of Accession so they’re bound by the existing owner agreement.
• Capital raise or option grants: If you introduce options, SAFE/convertible notes or a new class of equity, check that the agreement supports your cap table strategy.
• Restructures and spin‑offs: New subsidiaries, IP holding entities or licensing arrangements may require tweaks to reserved matters and funding provisions.
• Founder departures: Update leaver terms, vesting schedules and transfer provisions to reflect current roles and responsibilities.
• Trust deed amendments: For unit trusts, ensure the Unitholders Agreement still aligns with any changes to the trust deed or trustee arrangements.

As a rule of thumb, review owner agreements alongside major corporate actions so your governance keeps pace with growth.

How To Put One In Place (Step‑By‑Step)

1) Confirm Your Structure And Ownership Vision

Start by clarifying whether you’re operating as a company (shares) or a unit trust (units). Then set your end‑game: tight founder‑led control, investor‑friendly growth, or a balance of the two.

Sketch your initial cap table and consider how it might evolve. If you’re still mapping equity, this guide on how to allocate shares in a startup is a helpful starting point.

2) Align With Your Foundation Documents

Make sure the owner agreement works with your Company Constitution or trust deed. If the constitution is outdated or generic, consider updating it so the two documents reinforce each other rather than conflict.

3) Draft The Agreement Around Real Scenarios

Focus on the moments that create friction: raising capital, granting team equity, selling the business, replacing a director, buying out a departing founder, distributions and disputes. Build practical processes into the agreement so you’re not improvising under pressure.

4) Negotiate The “Big Ticket” Terms Early

It’s easier to discuss drag/tag, vesting, valuation methods and investor protections before any money changes hands. Aim for terms that are clear, balanced and future‑proof.

5) Execute Correctly

Once agreed, sign the document properly. For companies, you can streamline execution by signing under section 127 of the Corporations Act where appropriate, or via authorised representatives for trusts. Keep signed copies and your cap table together, and ensure any new owner signs a Deed of Accession as they come on board.

6) Keep It Current

Revisit the agreement when you change equity plans (like introducing a vesting schedule via a Share Vesting Agreement), appoint new directors, raise capital or restructure. A short addendum or update now can prevent major headaches later.

Shareholders Agreement Or Unitholders Agreement: Which One Do I Need?

If you operate via a company, you’ll use a Shareholders Agreement alongside your constitution. If you operate via a unit trust, you’ll use a Unitholders Agreement to complement the trust deed.

Many businesses start as companies because it’s a familiar structure with limited liability and a straightforward equity framework. Unit trusts are often used in property, investment or joint venture contexts where distributions and tax outcomes are a focus. Whichever path you choose, the “owner rules” need to match your structure.

Practical Tips To Get It Right

• Prioritise clarity over complexity: Plain, unambiguous drafting saves time and cost when something unexpected happens.
• Build in flexibility: Future rounds, option pools and reasonably foreseeable changes should be supported by the document, not blocked by it.
• Balance protections: Minority protections (like tag‑along and information rights) and majority efficiency (like drag‑along and reserved matters) both matter if you plan to grow.
• Document the “why” internally: Keep a simple note explaining key choices (for example, why you adopted particular classes). It helps new investors and future you.
• Keep your cap table neat: Ensure share or unit registers, option registers and signed deeds are consistent with what your agreement says.

Key Takeaways

• If you have co‑founders, investors or a unit trust structure, an owner agreement is essential to set clear rules and prevent disputes.
• A Shareholders Agreement works with your company’s constitution; a Unitholders Agreement complements your trust deed.
• Cover the big issues up front: decision‑making, transfers, drag/tag, vesting, pre‑emptive rights, valuation and dispute resolution.
• Use practical tools like a Deed of Accession so new owners are automatically bound by the same rules.
• Execute properly (including section 127 where relevant) and keep the agreement updated as your cap table evolves.
• Design the agreement around the scenarios you’re most likely to face-capital raises, team equity and exits-so you can move quickly with confidence.

If you’d like a consultation on preparing a Shareholders Agreement or Unitholders Agreement for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.