When you’re building a startup, the focus is usually on the product, funding, and growth. Yet one of the most important legal documents you’ll ever sign — the shareholder deed — often gets left until the last minute.
A shareholder deed (or shareholders’ agreement) is the foundation of your company’s governance. It defines who controls what, how decisions are made, how shares are valued, and what happens if someone leaves or disputes arise.
For Melbourne founders and investors, getting this right means protecting relationships and value.
In Australia, most startups begin as proprietary limited (Pty Ltd) companies. Under the Corporations Act 2001 (Cth), the constitution sets broad rules — but it rarely covers the real-world issues between shareholders.
A shareholder deed fills that gap. It:
Clarifies voting rights and decision thresholds
Sets out share transfer and valuation rules
Establishes clear exit terms for founders or investors
Provides a framework for dispute resolution
Without it, small disagreements can escalate into costly legal disputes. According to the Australian Institute of Company Directors (AICD), shareholder conflict ranks among the top three causes of early-stage business failure in Australia.
👉 Learn more about setting up your business right in our guide:
Startup Accounting in Australia – How to Choose the Right Business Structure and Build a Full-Stack Finance System
Your shareholder deed defines who decides what:
Fundamental matters — such as selling the business, issuing new shares, or changing the constitution — usually require a 75% majority vote.
General or operational matters — such as hiring, marketing, or smaller capital expenditures — can pass by a simple majority.
A majority shareholder typically holds more than 50% of the issued shares.
This balance protects minority investors while keeping the company agile for day-to-day operations.
Must sell their shares within 12 months of a trigger event (e.g. retirement, death, or agreed exit).
Shares are sold at full valuation.
May transfer to a related party.
Must sell within 3 months.
Shares are discounted by 20% from the valuation.
Cannot transfer to related parties.
Based on Maintainable Earnings × X (EBIT).
Small holdings (< 10%) may be discounted 10% to reflect lack of control.
To protect goodwill, exiting shareholders are often bound by cascading restraints based on geography & time:
| Geography | Duration |
|---|---|
| Australia | 5 years |
| Victoria | 3 years |
| Metro Melbourne | 2 years |
| 20 km radius | 1 year |
| 5 km radius | 6 months |
Such clauses must remain reasonable to be enforceable, balancing protection of the business with a departing shareholder’s right to earn a living.
These clauses protect both majority and minority shareholders during a sale:
Drag-along: if 50% + of shares are sold, the majority can compel all shareholders to sell at the same price — ensuring a clean exit for the buyer.
Tag-along: minority shareholders can join the sale on the same terms to avoid being left behind.
When decision-making stalls, your deed can specify several pathways:
Mediation – non-binding, low-cost step to preserve relationships.
“Russian Roulette” clause – a shareholder offers to buy/sell at a nominated price; the other must accept or reverse the deal at that same price.
Majority break clause – allows a > 50% shareholder to make a final decision after defined steps fail.
These mechanisms encourage rational offers and discourage opportunistic behaviour.
Dividends are declared by the Board under s 254T of the Corporations Act 2001, ensuring the company remains solvent after payment.
Shareholders with 20% + ownership may appoint one director; 40% + can appoint two directors or the Chairperson.
A minimum of two directors and a quorum of two or 66% ensures balanced decision-making.
A shareholder deed should align with your financial and reporting systems.
42 Advisory helps startups integrate governance with their finance stack:
Real-time cap-table management in Xero
Automated share registry and valuation tracking
Audit-ready governance records for investor confidence
Learn more: Startup Advisory Services Melbourne
and E-Commerce Accountants Melbourne
A well-drafted shareholder deed doesn’t just protect your equity — it protects your time, team, and trust.
For Melbourne founders and SMEs, it’s an essential step in building a resilient, investable business.
At 42 Advisory, we combine accounting precision with governance insight to help you design structures that grow with you — from day one to exit.