The Shareholder Agreement – SHA


The SHA is an agreement among the largest owners in a company where the parties agree on what rules are to govern important ownership decisions, decisions at meetings of the shareholders and of the board of directors. Customary clauses which regulate joint ownership are clauses which govern business purpose, rights of first refusal, consents, and pre-emptive rights. Among other things, the agreement will regulate:

  1. The identity of the contracting parties.
    • Decide who the legal owners will be, e.g., private persons or legal entities.
  2. Background, purpose, with the cooperation.
    • Summarise the background of the joint venture.
    • What is the owners’ purpose (e.g., time horizon, exit within a certain time or a bread and butter family business)?
  3. The company’s business.
    • What is the business purpose?
    • Jointly develop and agree on a business plan to cover the first three to five years. One very vital topic to discuss is the owners’ growth expectations and how the growth targets will be achieved.
  4. Issues which will require unanimity.
    • This clause will cover all matters that need unanimity among the owners, i.e., it’s not for the board to decide outside the agreed scope. Examples are the annual budget, investments above a certain value, acquisitions, dispositions, change of business, change of top management, and board composition.
    • It is important to inform the board if there are limitations regarding the capacity to make certain decisions.
  5. The composition of the board of directors.
    • Agree on the composition of the board of director, and how many board members each party in the joint venture may appoint. In particular, it is important to decide who will assume the chairman’s role. Should it be one of the owner’s representatives or should it be an external, independent chairman?
    • Consider appointing external, independent board members who would add value and contribute to the development of the business.
    • Consider if the board should appoint an advisory board with participants who may add value and network that will contribute to the business development (e.g., people from a university, an ex-customer or ex-competitor).
    • Decide if all board members representing main owners need to be at the board meeting to enable the board to make certain decisions. If so, decide on a procedure on how to avoid that one owner can delay important decisions by not showing up at a meeting.
  6. The company’s top management.
    • Agree on the appointment of top management, mainly the CEO and the CFO.
    • If not delegated to the board: Agree on the CEO-agreement and the compensation package.
    • Should key-employees be offered incentives that include equity instruments? Such as shares, options or convertible loans.
  7. Allocation of profits, dividends.
    • Discuss and agree on when and how profits should be allocated? Examples: “First two years all profits should be reinvested in the business and no dividends or debt pay-back should be paid to shareholders (no leakage). For the following years, 50% of profits may be distributed.”
  8. Any continued, future, financing.
    • Mainly two situations:
      1. Planned expansion capital as agreed on in the business plan.
      2. Needed new finance due to some negative circumstances in the company.
    • Generally, all shareholders should have the right but not the obligation to participate in new financing (new share subscriptions, new shareholders loans).
    • Agree on the financial structure of the company and what financial risk to take, e.g., external debt (bank or others) versus shareholders’ equity.
  9. If, how and when a shareholder may sell shares.
    • This is the divorce clause.
    • Should there be a lock-in period, e.g., during the first three years no one is allowed to sell their shares? Do not rock the boat!
    • Discuss if it is needed to agree on the procedure if, for example, one of the owners wishes to exit the company. 
  10. Pre-emptive rights and rights of first refusal for shares.
    • If possible: Pre-emptive rights in the company’s articles of association and rights of first refusal in the SHA.
    • Agree on the procedure when a shareholder wants to sell shares, e.g., regarding time span, drag along and tag along rights (for definitions see 
  11. How the company is to be valued in conjunction with sales of shares.
    • Agree on how to value the company when a shareholder wants to sell the shares.
    • Two main situations:
      1. There is not yet an external offer including price and other conditions.
      2. There is an offered deal including conditions and share price.
    • Agree on a method on how to value the shares. It is common to ask the companies auditor to do the valuation (provided it is not a conflict of interest). If the parties do not agree on such a valuation one option is to ask a second auditor to make a competing valuation. The shareholders then agree to accept the average of the two valuations.
  12. If, how and when shareholders may make any joint sale (exit).
    • Decide on a time frame if the shareholders have the ambition to seek a joint exit.
    • Add tag and drag along rights to simplify the transaction (definition see also
  13. Confidentiality.
    • Standard clauses.
  14. Any prohibition of competition.
    • In many jurisdictions almost impossible to prohibit a private person to join a competitor as an employee. It may, however, be possible if the employee is compensated.
    • It is more likely to prohibit a private person to become a shareholder in a competing business.
  15. Governing law.
    • It should be governed by the local country laws where the business is a registered, e.g., Swedish laws should govern a Swedish AB.
  16. How and where disputes are to be resolved.
    • Up the shareholders to agree. Usually, arbitration is used to resolve issues among business partners since it’s a non-public and faster route (but more expensive).

The aim of this brief is to guide you in your discussions when you are considering a joint venture among new shareholders in a business. However, at some point, you must bring in lawyers to help you to develop the final agreement. Anyway, I hope these sixteen main bullets may help you to be better prepared and be able to save some legal costs.


Please, drop me an e-mail in case you need any further information.

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