Shareholders Agreements

A shareholders agreement is the foundational contract that governs the relationship between the shareholders of a company — their rights, obligations, and the rules that determine how the company is run and how disputes are resolved. It is one of the most important documents a company will ever execute, and one of the most frequently neglected. In the absence of a well-drafted shareholders agreement, the relationship between shareholders is governed only by the Companies Act, 2015 and the company's articles of association — which are often generic and insufficient to address the specific dynamics of the shareholder group.

This service is tailored to the specific needs of each company and its shareholders. Advocates begin by understanding the commercial relationship between the parties: who are the founders, who are the investors, what are the respective contributions (cash, expertise, intellectual property, networks), and what are the long-term objectives of each party. Advocates then draft an agreement that reflects those dynamics and provides a clear framework for decision-making, dispute resolution, and exit.

The core provisions they address include: the composition and powers of the board, including any requirement for investor-appointed directors and the matters that require unanimous or supermajority approval (reserved matters); the transfer of shares, including pre-emptive rights (the right of existing shareholders to buy shares before they are sold to a third party), drag-along rights (the right of a majority to compel a minority to sell in a sale of the company), and tag-along rights (the right of a minority to participate in a sale by the majority); and the exit arrangements, including put and call options, and the mechanics of a sale process.

Advocates also address the operational dimensions: the funding obligations of the shareholders, the dividend policy, the management of the business by the executive team, the reporting and information rights of the shareholders, and the restrictions on competing with the company. Advocates include deadlock-breaking mechanisms — such as a chairman's casting vote, mediation, or a "Russian roulette" or "Texas shoot-out" provision — to prevent the company from becoming paralysed by shareholder disagreement.

For companies with investor shareholders, they negotiate and draft the investor protections: anti-dilution provisions, liquidation preferences, conversion rights, and information and inspection rights. Advocates ensure that these protections are balanced — giving the investor the comfort they need without unduly constraining the founders' ability to run the business.

Advocates also handle the amendment and renegotiation of existing shareholders agreements — whether in the context of a new investment round, a change in the shareholder group, or a restructuring of the business. The work also covers the negotiation of these agreements from both the founder and the investor perspective, and they bring a commercial, problem-solving approach to the process.