Shareholders' Agreement

The question

You have co-founders, a first investor or family members in the company, and you want to agree today how decisions are taken, who can leave, who can sell and what happens if the relationship breaks down. Shareholder disputes usually concern something nobody wrote down: a founder who stops working but keeps all his shares, an offer that one shareholder wants to accept and the others do not, or a new round that dilutes the team.

A shareholders' agreement is the contract in which the owners settle these points. You usually need one as soon as there are two or more shareholders with different roles or different money at stake: founders who each contribute differently, a business angel or fund coming in, a family company with a next generation, or a joint venture between two companies. See funding rounds and term sheets for how it fits into a financing.

Company law is largely national in the EU, so the details depend on the country where the company is incorporated. The basic split is similar in many countries: the agreement works alongside the articles of association. The articles are filed in a public register, and bind the company and third parties. The shareholders' agreement is a private contract that binds only its signatories, stays confidential and is easier to change. What goes where is the first decision. Rules that must be enforceable against the company or a future buyer, such as approval clauses, belong in the articles too. Rules about the relationship between the owners, such as leaver terms and non-compete, belong in the agreement.

Our approach

We start with who contributes money, work and IP, and what the next round may look like. We draft both documents as a set, so they do not contradict each other. If you have not yet set up the company, we do this together with the incorporation; if an investor is coming in, together with the funding round.

The agreement covers:

• Governance. Board composition and nomination rights, decisions reserved for shareholders or for a qualified majority (budget, new shares, borrowing, selling key assets, changing the business), and information rights for minority holders.
• Transfers. Lock-up for an initial period, pre-emption rights, approval clauses, drag-along and tag-along. National company law sets limits, and they differ per country. Most countries allow transfer restrictions in the articles or the agreement, but not in a way that locks a shareholder in without a fair exit. We check what applies to your company form and country.
• Vesting and leavers. Founder shares that vest over time, and a good leaver and bad leaver regime that sets the price when someone leaves. The price must stay proportionate and balanced.
• Deadlock. A way out when two equal shareholders cannot agree: escalation, mediation, a buy-sell mechanism or, as a last resort, a sale.
• Non-compete and confidentiality. Restrictions on founders that are limited in scope, time and territory.
• IP and founders' contributions. Everything the founders created for the business is assigned to the company, in writing, so that the company, and not an individual founder, owns the code, designs, brands and inventions that investors will pay for. Gaps in the chain of title are a common finding in later due diligence, see finding the IP you already have, protecting software and M&A.
• Later rounds. Anti-dilution protection, pre-emption on new issues and what happens to the agreement when new investors join.
• Disputes. Governing law, and a choice between courts, mediation and arbitration.

Our Document Studio produces the first draft in the firm's house style from our clause library, in Word, with party details taken from company registers such as the national company registers. When an investor sends its own draft, our contract review reads it clause by clause against our playbook and ranks the issues, and a lawyer checks every finding before we advise you. After signature, the rights and obligations register can follow dates such as lock-up periods, notice periods and option windows, once a person has confirmed them.

What you get

• A shareholders' agreement tailored to your situation, with matching articles of association.
• A clear overview of what is in the articles and what stays private.
• Negotiation of the investor's draft, with a ranked list of issues and proposed redlines.
• Founders' IP assignments, so that the company owns what it uses.

Take two founders who each own half of a software company, with a first investor about to join. We set up vesting so that one founder leaving after a year does not keep half the company, add a deadlock procedure, and have both assign existing code and the brand to the company. When the investor's draft arrives with reserved matters that cover day-to-day decisions, our review flags them, and we propose a shorter list.

Next step

Tell us who the shareholders are, what each contributes and whether a financing is coming. We will propose how to split the articles and the agreement, and what to negotiate first.

Schedule a meeting or contact us.