FAQs

A shareholders’ agreement is a private contract between a company’s shareholders that sets out how the company will be run and how shareholders will interact with each other.

It typically covers:

• Decision-making
• Share ownership and transfers
• Rights and obligations of shareholders

In practice:
If two founders start a business together, a shareholders’ agreement can clearly set out who makes key decisions and what happens if one wants to leave.

While a company’s articles of association provide a basic framework, a shareholders’ agreement gives more detailed protection tailored to the shareholders’ needs.

It helps:

• Prevent disputes
• Protect minority shareholders
• Provide clarity on key business decisions

In practice:
Without an agreement, a majority shareholder could make decisions that disadvantage minority investors, with limited safeguards.

Common provisions include:

• Reserved matters (decisions requiring shareholder approval)
• Share transfer rules (e.g. pre-emption rights)
• Dividend policy
• Exit provisions (how shareholders can sell their shares)
• Dispute resolution mechanisms

In practice:
A clause requiring all shareholders to approve taking on significant debt prevents one shareholder from exposing the business to unexpected financial risk.

The agreement usually restricts how shares can be sold to protect the existing shareholders.

Typical provisions include:

• Offering shares first to existing shareholders (pre-emption rights)
• “Drag-along” rights (majority can force a sale)
• “Tag-along” rights (minority can join a sale)

In practice:
If a majority shareholder sells their shares to a third party, tag-along rights allow minority shareholders to sell their shares on the same terms.

The agreement may include mechanisms to resolve disputes, such as:

• Negotiation or mediation
• Deadlock provisions (e.g. buy-out options)
• Escalation procedures

In practice:
If two equal shareholders disagree on a key decision, a “deadlock” clause may trigger a process where one party buys out the other or an independent third party makes the decision.