Shareholder Agreement

Who decides, who can sell, and what happens on exit

A company’s constitutional documents say how it is governed in general terms. A shareholder agreement says how these shareholders have agreed to deal with each other specifically — and it is private, which the constitution usually is not. 

It matters most at three moments: when shareholders disagree, when one wants to sell, and when someone wants to buy the whole company. All three are foreseeable and all three go badly without a written agreement.

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Shareholder agreements determine ownership, control and exit economics. This is one to have reviewed by a qualified corporate lawyer before signing — the cost of review is small against what the document decides.

What it covers that the constitution does not

Reserved matters. Decisions requiring more than a simple majority — issuing new shares, taking on debt above a threshold, changing the business, selling the company, appointing directors. Without these, a majority holder can act unilaterally on things a minority holder would reasonably expect a say in.

Share transfer restrictions. Pre-emption rights giving existing shareholders first refusal before shares can go to an outsider. Without them, you can find yourself in business with whoever a co-shareholder chose to sell to.

Drag-along rights. Allow a majority to compel minority holders to join a sale of the whole company. Buyers usually want 100%, and a small holdout can block a transaction entirely.

Tag-along rights. The mirror image — if a majority holder sells, minority holders can join on the same terms rather than being left behind with a new controlling shareholder.

Information rights. What accounts and reports shareholders receive, and how often.

Dividend policy. Whether profits are distributed or reinvested, and on what basis.

Deadlock resolution. For a 50/50 company especially, a mechanism to break a tie — mediation, a casting vote, or a buy-sell trigger. Without one, disagreement can freeze the company.

Founder and employee share provisions. Vesting, good leaver and bad leaver treatment, and what happens to shares when someone departs.

Non-compete and confidentiality for shareholders who are also active in the business.

Shareholder agreement or founders agreement?

They overlap and are often confused.

A founders agreement is between the founding team, usually before outside investment. It focuses on equity split, vesting, roles, IP assignment and what happens if a founder leaves. Use the AI Partnership Agreement Generator for this.

A shareholder agreement governs the wider shareholder body once there are investors, and focuses on voting, transfers, exit rights and information. It typically supersedes or sits alongside the founders agreement.

Most companies eventually need both. If you are pre-investment, start with the founders agreement.

What investors will expect to see

If you are raising, expect the investor to propose their own shareholder agreement rather than accept yours. Knowing what the terms mean before that conversation is worth considerably more than having drafted a version first.

The terms most negotiated are reserved matters, anti-dilution protection, liquidation preference, board composition and information rights. A term sheet that looks founder-friendly on valuation can be substantially less so once these are read together — which is exactly what the AI Document Analyzer is useful for.

An example prompt

Shareholder agreement for a private limited company in Delaware with three shareholders: two founders holding 40% each and one angel investor holding 20%. Reserved matters requiring unanimous consent: issuing new shares, taking debt over $100,000, selling the company. Pre-emption rights on any transfer. Drag-along at 75%, tag-along for all minorities. Quarterly management accounts to all shareholders. Four-year founder vesting with a one-year cliff. Deadlock resolved by mediation.

That produces a structured agreement covering each of those points plus the standard provisions, in about a minute, editable throughout.

Related documents

• AI Partnership Agreement Generator — founders agreements and partnerships
• Partnership Agreement — manual form builder
• AI NDA Generator — before investor conversations with non-institutional parties
• Loan Agreement — where funding is debt rather than equity
• Startup legal documents — the full set
• AI Document Analyzer — read an agreement an investor sent you

FAQs

What is a shareholder agreement?

 A private contract between a company’s shareholders governing voting rights, share transfers, exit provisions, information rights and dispute resolution, sitting alongside the company’s constitutional documents.

Is a shareholder agreement legally required? 

No, but without one the default position under company law and the constitution applies, which frequently does not match what shareholders would have chosen — particularly on transfers and minority protection.

What is the difference between a shareholder agreement and articles of association? Articles are the company’s constitution and are usually publicly filed. A shareholder agreement is a private contract between shareholders and can contain commercially sensitive terms. Where they conflict, the position depends on jurisdiction, so they should be drafted to work together.

What are drag-along and tag-along rights? 

Drag-along lets a majority compel minorities to join a sale of the whole company. Tag-along lets minorities join a sale on the same terms as the majority. They protect opposite sides of the same transaction.

Do I need one before taking investment?

 Investors will normally require one and usually propose their own. Understanding the terms beforehand matters more than having drafted your own version.

Can a shareholder agreement be changed? 

Yes, generally by the consent threshold the agreement itself specifies — often unanimity or a defined supermajority. Amendments should be documented in writing and signed.

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IndigoEDocs produces AI-assisted drafts. Shareholder agreements determine ownership, control and exit economics — have the final document confirmed by a qualified corporate lawyer before signing.