Checklist: Shareholders’ Agreement

Key issues to consider when negotiating a Shareholders’ Agreement include:


  • How will the business be funded?
  • If shares are being issued, how are they being paid for (cash, IP, other assets etc)?  Will all shareholders have the same type of shares, i.e. the same voting rights and entitlements to dividends and capital?
  • If any of the funding is being provided by way of a loan, on what terms is the loan being made and repaid?


  • Will the shareholders be agreeing a business plan, either for the first year or two, or on an ongoing, annual basis?
  • Is the business being set up for the long term, or with a view to an exit as soon as possible?


  • What proportion of profits will be distributed as dividends, rather than reinvested in the business?
  • Will all dividends be distributed to shareholders equally, or will profits be allocated by the board to shareholders based on performance, effort etc?


  • What employees will the company be hiring, and on what terms?
  •  Will full-time directors be entitled to be paid for their work, over and above their entitlement to any profits?
  • Will the company use shares to motivate and retain key employees, whether by way of a share option plan or otherwise?


  • How often will board meetings be held? How many directors need to attend the meeting for the meeting to be quorate, so that decisions can be made?
  • Will all board decisions be made by way of a simple majority, or will a different majority (two-thirds, three-quarters etc.) be required for key board decisions?
  • Will the right of individual directors to make bank transfers, sign contracts, employ staff, purchase assets etc. be limited?
  • How can directors be removed, and/or additional directors appointed?

Decision making

  • What types of decisions will the directors need to refer to the shareholders?
  • For decisions that require shareholder approval, what percentage of the shareholders is required?
  • Will minority shareholders be given any special protections?

Sale of shares

  • What happens if a shareholder wants to sell their shares? Should all the other shareholders have first dibs?
  • How are the shares valued?  By an independent accountant, by reference to a pre-agreed formula, or using some other method?
  • If a shareholder dies or is permanently incapacitated, what happens to their shares?

Drag along/tag along

  • If the majority (or other minimum percentage) of the shareholders want to sell their shares to a third party, will they be entitled to force (‘drag along’) the remaining shareholders to sell to that third party as well?
  • If the majority (or other minimum percentage) of the shareholders propose to sell their shares to a third party, will the remaining shareholders have the right participate (‘tag along’) in the sale to the third party?

Employee shareholders

  • If a shareholder is also an employee, do they have to sell their shares if they resign? What if they are fired?
  • If a leaving employee shareholder has to sell their shares, does the company have the right to purchase the shares in priority to the other shareholders?

Non-compete restrictions

  • What non-compete and/or other restrictions will apply to a shareholder who leaves?

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