What is a shareholder agreement?

A shareholder agreement is a private contract between the shareholders of a company that governs their relationship – decision-making, dividends, share transfers, exits, dispute resolution, and non-compete rules. It sits alongside the company constitution and addresses matters too sensitive or specific for the public-facing constitution.

What it covers

Decision thresholds (which decisions need unanimous, supermajority, or majority approval). Share transfer restrictions and pre-emption mechanics. Drag-along and tag-along rights. Exit triggers (death, divorce, disability, dispute). Buyout valuations and funding (often via insurance). Non-compete and non-solicitation. Dispute resolution.

Constitution vs agreement

Constitution is public-facing and binds anyone who becomes a shareholder. Agreement is private and binds the parties who sign it. Both are needed – they handle different things and reinforce each other.

When you need one

Any company with two or more shareholders. Founder partnerships. Family business with siblings or cousins as co-owners. Investment-stage companies. Without one, disputes resolve in court at significant cost.

How long it takes

Drafting a shareholder agreement typically takes 3-6 weeks for straightforward arrangements. Negotiated agreements between unrelated parties can take longer. Sam quotes a fixed fee after understanding your specific situation.

Summary

A shareholder agreement is the private contract between company owners. Here’s what it covers and why every multi-shareholder company needs one.

Talk to Sam about your situation

If this article raised questions for your own circumstances, Sam Michele offers free 20-minute initial consultations. Learn more about our shareholder agreement work, or book a consultation.

Related reading

• Shareholder agreement template: what every clause does
• Why every company with 2+ shareholders needs an agreement
• Shareholder agreements