Shareholder agreements made simple

Why a shareholder agreement matters

A company's articles of association cover the basics the law requires, but they rarely resolve what happens when shareholders disagree — on strategy, on an exit, or on who gets the final say. A shareholder agreement fills that gap. It is a private contract between the shareholders themselves, sitting alongside the company's constitutional documents, and it is usually the difference between a disagreement that gets resolved in a boardroom and one that ends up in court.

We draft and review these agreements for founders bringing on their first investor, family businesses formalising an ownership structure, and joint ventures where two unrelated parties need the rules settled in writing before any money changes hands.

What the agreement should cover

There is no standard template that fits every company — the right agreement depends on the number of shareholders, whether any of them also work in the business, and how much control a minority holder needs. That said, most agreements we draft address the same core questions:

• How shares can be transferred, and who gets right of first refusal
• What happens if a shareholder wants to exit, retires, or passes away
• Which decisions need unanimous or supermajority consent
• How deadlock between equal shareholders gets resolved
• Anti-dilution and pre-emption rights on a future fundraise
• Non-compete and confidentiality obligations after a shareholder leaves

Common disputes it prevents

Most of the shareholder disputes we see in litigation trace back to a gap the agreement never closed — a valuation formula that was never defined, an exit clause that assumed a friendly buyer, or a deadlock provision that only worked for two founders and broke down once a third came on board. A well-drafted agreement doesn't remove the possibility of disagreement; it removes the ambiguity that turns a disagreement into a dispute.

A pattern we see often

Two founders start out as equal shareholders on a handshake, formalise it later with a bare-bones agreement copied from a template, and only notice the gaps once a third investor comes in and the 50/50 deadlock clause no longer means anything. By then, renegotiating from a position of trust is much harder than getting it right the first time.

Drafting and review checklist

Before signing — or before bringing a new shareholder in under an existing agreement — it's worth checking the document actually holds up:

• Does the valuation mechanism produce a number both sides would accept?
• Is the deadlock clause tested against your actual shareholder count, not just two founders?
• Are drag-along and tag-along rights mutually consistent?
• Does it account for a shareholder's death, insolvency, or incapacity?
• Has it been reviewed since the company's last fundraise or restructuring?

When to revisit the agreement

A shareholder agreement isn't a one-time document. Bringing in a new investor, crossing into a new jurisdiction, or simply going three or four years without a review are all good reasons to have it looked at again. We typically recommend a review alongside any funding round, and at least once every few years regardless.