Shareholders’ Agreements and Company Constitutions

We have previously written about Shareholder’s Agreementsand what they are. A Shareholder’s Agreement is certainly very important as it deals what each shareholder brings to the table, and more importantly, what happens when there is a disagreement or if a shareholder wants to exit the business. Not having a Shareholder’s Agreement will likely make the exit process more difficult. However what a Shareholder’s Agreement cannot do is to determine how the company is run, who has the day to day responsibilities, who the directors are, and the conduct of board meetings. These are all matters dictated by the Company Constitution.

The Constitution has the effect of an agreement between the company, its members, its directors, and its secretary. A company adopts a Constitution on registration or after registration. If no particular Constitution has been adopted after registration, a default set of rules called the Replacable Rules. These rules are found in the Corporations Act and they deal with a number of topics including:

  • Company Officers and Employees
  • Meetings of Directors
  • Powers of Directors
  • Voting, Resolutions, and Quorums.
  • Meetings of Members
  • Transmissions of Shares on Death or Bankrupcy

A Company can replace some of the Replacable Rules with its own rules or adopt its own Constitution so long as a special resolution has been passed by its Shareholders. If a member is not satisfied with the way the company is being run, and if the company is being run in contravention of its own Constitution, they may be able to bring legal action against the offending member.

A well-run business involving more than one partner should always have both a Shareholder’s Agreement and a Company Constitution.

Managing Risk through Online Terms of Use

The Web 2.0 era is characterised by the fundamental shift in how people interact with information. No longer does information flow in one direction – opportunities now exist for the consumer of information services to contribute, provide feed back, criticise, or determine if the content is newsworthy. This high level of interaction is typically considered to be positive.

However, as with anything, when engaging in such activities you should be mindful of the potential risks that come along with it – and this is doubly true for hosts of content or webmasters. In addition to considering if content is potentially defamatory, or libellous, one must also consider issues such as copyright, privacy, and control.

If you are a webmaster or a service provider or some sort, these risks can often be managed by a combination of:

  • having a clear and effective Terms of Use;
  • actively policing your user base for breaches of the terms; and
  • having policies in place on dealing with complaints.

In addition to being able to assist in managing your risks, by having clear and effective Terms of Use, you are able to manage your users more effectively. Note that just having a Terms of Use may not be sufficient to protect you – your risk management strategy should consist of both legal and non-legal measures. In addition to this, a Terms of Use has to be effective towards whatever service you are providing. There is no point in going with a standard Terms of Use if the terms contained within are not particular to the type of service that you provide.

While you can draft a Terms of Use by yourself, it is always advised that you should seek legal advice in doing so. A solicitor can identify issues that you may not have previously considered and can generally add value to the entire process.