Shareholder Agreement

A company's constitution sets out basic rules, but shareholders often agree further terms privately. A shareholder agreement is especially important in private companies, start-ups and joint ventures, where shareholders may need protection and clear processes.

Common provisions include who can appoint directors, matters that require shareholder approval, such as issuing new shares or selling the business, restrictions on transferring shares, such as rights of first refusal, drag-along and tag-along rights, dividend policies, how disputes are resolved and what happens if a shareholder leaves, dies or wants to sell.

For example, two founders and an investor might agree that the investor can appoint one director, that major decisions need the investor's consent and that a founder who leaves within two years must sell their shares back at a set price.

Shareholder agreements are usually private, unlike company constitutions, which may be publicly filed. They help prevent disputes by setting expectations clearly in advance.