Corporate ·
The shareholders’ agreement: five clauses that prevent 90% of disputes
Most corporate crises do not come from a bad business idea but from rules nobody wrote down while things were going well. These are the ones we most often find missing once the dispute has broken out.
When two or more people set up a company, the relationship is at its best. That is precisely why it is the only moment at which the rules can be agreed calmly for when it no longer is. A shareholders’ agreement is not a gesture of mistrust: it is recognition that each shareholder’s personal circumstances will change over ten or twenty years, and that it is worth deciding today how those changes will be handled.
These are the five provisions whose absence, in our experience, generates most of the corporate disputes that end up in court.
1. The regime for transferring shares
The law provides a default right of pre-emption, but it is rigid and often fails to reflect what the shareholders would have wanted. It is worth expressly regulating what happens if a shareholder wants to sell, dies, divorces and their shares fall into the matrimonial settlement, or has them seized by a creditor. Without specific provision, the company can end up with a shareholder nobody chose.
2. Drag-along and tag-along
If an offer arrives for 100% of the company, a minority shareholder holding 5% can block the whole transaction. A drag-along clause allows the majority to require them to sell on the same terms. Its natural counterweight is the tag-along clause, which guarantees the minority the right to exit alongside the majority on identical terms, avoiding being left alone with a new and unknown partner.
3. The valuation formula
This is the clause that saves most litigation. When the time comes for a shareholder to leave — voluntarily, through conflict or on death — the argument always centres on price. Agreeing the valuation method in advance (a multiple of EBITDA, adjusted net book value, valuation by an independent expert appointed by a neutral third party) turns a months-long negotiation into an arithmetic exercise.
4. Service and commitment
In many SMEs the shareholders are also the workforce. It is worth clearly separating the role of shareholder from that of executive: what commitment is undertaken, what remuneration corresponds to work and what to capital, and what happens to the shares of a shareholder who stops working in the business. The absence of this distinction is the usual source of the complaint that “one of us earns the same for half the work”.
5. Deadlock resolution
In a 50/50 company, deadlock is structural. Without a mechanism to break it, a sustained disagreement paralyses the company and leads to dissolution for paralysis of the corporate bodies. Contractual solutions exist — a rotating casting vote, mandatory prior mediation, reciprocal buy-out clauses such as Russian roulette or Texas shoot-out — that resolve the impasse without destroying the value of the business.
None of these clauses is expensive to draft before the dispute exists. All of them are impossible to introduce afterwards.
This article is for general information only and does not constitute legal advice. Every situation requires individual analysis.