Short answer: A shareholders agreement for a 50/50-owned company should set out financial contributions, work and pay, decision-making authority, deadlock resolution and exit arrangements. Equal share ownership does not, by itself, settle who can make decisions or what happens if an owner leaves.
Watch PA Law’s video guide to the five questions equal business owners should discuss before investing or signing. This guide is for company owners in South Australia; a partnership is a different business structure.
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Want more detail? Read our 50/50 shareholders agreement article for practical examples, a decision-making table and seven frequently asked questions.
What should a shareholders agreement cover?
A shareholders agreement should set practical rules for how the owners will fund, operate and eventually leave the company. For equal owners, it needs a workable process for decisions that cannot obtain the required approval. Review the company constitution, any applicable replaceable rules and the agreement together.
Check voting rights separately: 50/50 share ownership does not automatically mean identical powers as directors or employees. Share classes, board composition, quorum requirements and any chair’s casting vote can affect who controls a decision. Do not assume that every disagreement creates a legal deadlock.
1. Money and future funding
Record how much each person is contributing and whether the contribution purchases shares or is a loan to the company. The shareholders agreement should also explain what happens if the business needs more capital, whether funding must be equal, and the consequences if one owner cannot or will not contribute.
2. Work, responsibilities and pay
Agree who will perform each role, the expected time commitment and how salary, director fees, dividends or other payments will be decided. Address what happens if a shareholder stops working in the business but continues to own shares. Ownership and employment are related, but they are not the same thing.
3. Decisions and authority
Define the decisions an owner may make alone and those requiring both shareholders’ approval. Consider limits for major spending, borrowing, hiring, entering contracts, changing the business plan and issuing new shares. Clear approval thresholds help prevent uncertainty about whether one person had authority to commit the company.
4. Disagreements and 50/50 deadlock
A 50/50 split can create deadlock because neither side controls a majority. A tailored shareholders agreement may require negotiation, a structured meeting, mediation or another agreed process. It should also state what happens if those steps fail, rather than leaving the company unable to act indefinitely.
5. Exit, valuation and payment
Set rules for a voluntary exit, death, incapacity, serious breach or relationship breakdown. Identify who may buy the departing owner’s shares, how they will be valued and when the purchase price must be paid. Consider whether transfers to outsiders are restricted and whether the continuing owner has a first opportunity to buy.
Shareholders agreement checklist for a 50/50 business
Use these five questions at your first planning meeting. Record what you agree and take the outstanding issues to your solicitor before signing.
| Issue | Question to agree | What to record |
|---|---|---|
| Funding | Is each contribution equity or a loan? | Amounts, repayment terms and a process for future funding. |
| Work and pay | Who does what, and how is pay approved? | Roles, time commitments and separate arrangements for wages and dividends. |
| Authority | Which decisions need joint approval? | Spending limits, borrowing powers and decisions reserved for both owners. |
| Deadlock | What happens if the required approval cannot be obtained? | Escalation steps, time limits, mediation and a workable final process. |
| Exit | How can an owner leave? | Transfer triggers, valuation, funding, payment and any required guarantee releases. |
Example: Two equal owners disagree about signing a new premises lease. Before either owner commits, check who has authority to sign and whether joint approval is required. If approval cannot be obtained, follow the agreed escalation process. A 50/50 shareholding alone does not answer those questions.
Directors also have duties that operate independently of the owners’ private arrangements. Read ASIC’s guidance on company officeholder duties and its company governance replaceable rules, including rules about directors’ voting.
Video transcript
Thinking of owning a business 50/50 with a friend, relative or colleague? Before you commit, discuss what happens when you disagree.
A shareholders agreement should deal with five key areas.
One: money. How much is each person contributing? Is that money buying shares or being lent to the company? What happens if the business needs more funding?
Two: work and pay. Who does what, how will each person be paid, and what happens if someone stops working in the business?
Three: decisions. Who can approve major spending, borrow money or sign contracts? Which decisions require both owners’ agreement?
Four: disagreements. How will you resolve a deadlock? What happens if mediation does not resolve the dispute?
Five: exit. If a shareholder wants to leave, who can buy their shares, how will the price be calculated, and when must payment be made?
These questions are a starting point. A shareholders agreement should be tailored to your company and checked against its governing rules and legal obligations.
Save this video for your next business planning meeting and share it with your co-owner. Follow PA Law for practical commercial law information before you sign, invest or commit.
Frequently asked questions about a 50/50 shareholders agreement
Do 50/50 business owners need a shareholders agreement?
It is not generally compulsory merely because ownership is equal. A tailored agreement can set out funding, work, decision-making, deadlock and exit rules that the company constitution and general law may not address in the way the owners expect.
What is a shareholder deadlock?
A shareholder deadlock occurs when a decision cannot obtain the required approval because the shareholders disagree. Whether a deadlock exists depends on the voting rights and governing documents. The agreement can define escalation steps, deadlines, mediation and what happens if the impasse continues.
Can a shareholders agreement force someone to sell?
An agreement may contain carefully drafted compulsory-transfer provisions for specified events. They do not create an unrestricted right to remove a co-owner. Whether a transfer can be required depends on the wording, the triggering event, company documents and applicable law.
How are shares valued when an owner leaves?
The agreement can specify a valuation method, an independent valuer or a process for agreeing the price. It should address the valuation date, relevant debts and shareholder loans, who pays valuation costs, and when and how the purchase price is paid.
Is a shareholders agreement the same as a company constitution?
No. A constitution regulates the company’s internal governance. A shareholders agreement is a contract between its parties about agreed ownership and business arrangements. They should be reviewed together with applicable law to manage inconsistencies.
Does owning 50% of the shares give me equal control over every decision?
No. Share ownership, directorship and employment are distinct roles. Voting rights, share classes, board arrangements, quorum requirements and any casting vote can affect control. Check the company’s governing documents and applicable rules before assuming either owner can block or approve a decision.
What if one shareholder stops working in the business?
Stopping work does not, by itself, transfer that person’s shares. Check employment and director arrangements separately from ownership. A shareholders agreement can address work commitments, pay and defined exit or transfer events, subject to its terms and applicable law.
For official background, see ASIC’s shareholder rights and responsibilities guidance. For fuller examples, read PA Law’s 50/50 shareholders agreement article.
What should you prepare before seeking advice?
- Gather the company documents: the constitution, share register, existing shareholders agreement and any relevant loan or guarantee documents.
- Write down each owner’s expectations: contributions, weekly involvement, responsibilities, pay and the decisions requiring joint approval.
- Discuss difficult scenarios: extra funding, a prolonged disagreement, an owner stopping work, death, incapacity or a proposed sale.
- Obtain advice before signing: ask how the agreement works with the company’s governing rules, tax position and financing. Each owner should consider independent advice about their own interests.
Browse all PA Law legal video guides for more practical explanations before you sign, invest or commit.
Starting or restructuring a business in South Australia?
PA Law can assist with shareholders agreements and practical commercial documentation tailored to the proposed ownership and decision-making structure.
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This page provides general information only and is not legal, financial or tax advice. Obtain advice tailored to your company and circumstances.