Shareholders agreement

What it is and when it is used

A shareholders agreement is used when a private company has two shareholder groups with different weight: a majority shareholder that controls the company and a minority shareholder that needs protection. The agreement sits alongside the articles of association and regulates governance, share transfers, new issues, dividends, information, deadlock and exit. It also covers the conduct of business, shareholder meetings (notice and quorum) and confidentiality.

Who signs it and in which role

The Majority Shareholder and the Minority Shareholder, each an individual or an entity, sign it in respect of the company named in the preamble. Together they hold all the issued shares.

Key clauses

Board composition and reserved matters

The board can be controlled by the majority (with one minority director and one independent), balanced with an independent chair holding the casting vote, or proportional to shareholdings. Reserved matters can be broad, standard or minimal.

Share transfers, tag-along and drag-along

Transfers can be subject to a right of first refusal, board consent, or a lock-up period followed by a right of first refusal. Exit rights can combine tag-along and drag-along, give tag-along only, or set drag-along at a high 90% threshold.

Pre-emptive rights and anti-dilution

New shares can be offered pro rata, with super pro rata rights, or with no contractual pre-emption. Anti-dilution protection can be broad-based weighted average, full ratchet or none.

Dividends and information

Dividends can be a mandatory minimum distribution, board discretion with an annual review and written reasons, or full reinvestment. Information rights range from comprehensive (monthly accounts, budget, inspection) to the statutory minimum.

Deadlock, exit and non-compete

Deadlocks go to mediation then buyout, a shoot-out, or expert determination. Exit can be a minority put option, an IPO target with backstop, or nothing specific. A non-compete can apply during the shareholding and twelve months after, only during the shareholding, or not at all.

Governing law

California law, English law, or arbitration with a chosen seat and governing law.

What the two sides usually negotiate

Almost every clause has one option for each side and a middle option:

• Board: majority control favours the Majority Shareholder; proportional representation is neutral.
• Reserved matters: broad lists favour the Minority Shareholder, minimal lists the majority; the standard list is the middle ground.
• Exit rights: tag-along only favours the minority; tag-along plus drag-along is neutral.
• Pre-emption, information and anti-dilution: full pro rata rights, standard information rights and broad-based weighted average are the balanced positions; full ratchet strongly favours the minority.
• Deadlock: mediation then buyout is neutral; the shoot-out favours the majority.
• Exit: an IPO target with backstop is neutral; a put option favours the minority.
• Non-compete: a restriction only during the shareholding is the middle ground.

When the parties choose differently, Dealroom proposes these neutral options as the compromise, weighted by how firmly each side holds its position.

Jurisdictions and languages Dealroom supports for it

Dealroom drafts this agreement under the law of California or England and Wales, in English or Spanish. For California, the template notes that pre-emption rights are contractual only and that shareholder non-competes may be void under section 16600. For England and Wales, it supplements statutory pre-emption under section 561 of the Companies Act 2006 and preserves the unfair prejudice petition (section 994) and just and equitable winding up. Shareholder arrangements for Spanish companies are covered by the Spanish shareholders' agreement.

Common mistakes

• No dividend policy. Without one, the majority can reinvest all profits indefinitely and deny the minority any return.
• No exit mechanism. In a private company with no market for shares, the minority may be locked in indefinitely.
• Ignoring information rights. A minority without a board seat depends on them.
• No agreed deadlock route. Deadlocks can paralyse the company.
• Choosing a governing law that does not match the company. The template warns that California law is not appropriate for a UK company, and English law not for a US one.
• A non-compete in California. It is generally void there.

# 1. Read the clauses, options and the facts it needs
curl https://dealroom.todo.law/api/v1/agent/templates/SHAREHOLDERS \
  -H "Authorization: Bearer drk_YOUR_KEY"

# 2. Create the contract (clauses you leave out take the default option)
curl -X POST https://dealroom.todo.law/api/v1/agent/deals \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "schema": "dealroom.solo-intake/1",
    "contractType": "SHAREHOLDERS",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "dealName": "Example SHAREHOLDERS",
    "selectionPolicy": "defaults"
  }'