Shareholder agreement

A shareholder agreement is the private rulebook between the owners of a company. It sits alongside the company’s formal governing documents and usually covers matters such as:

• Decision rights. Which decisions need a simple majority, which need a larger one, and which need every owner to agree.
• The board. Who can appoint directors, and how many.
• Transfers of shares. Who may sell, to whom, and on what terms. This part is sometimes a separate buy-sell agreement.
• Information. What owners are entitled to see, and when.
• Disputes. How disagreements between owners are resolved before they reach a court.

In a family company, the shareholder agreement often has to cover owners with very different relationships to the business: those who work in it, those who only own part of it, and those who will inherit. It may address voting and non-voting shares, a dividend policy, and what happens when a branch of the family wants to sell.

Shareholder agreement or family constitution?

A shareholder agreement is a legal contract between owners. A family constitution is usually a statement of the family’s values, governance and policies, and in many families it is not legally binding. The first governs the shares. The second governs how the family organises itself around them.

What it does not say

Neither document says who decides what on a Monday morning once the successor takes over, or how founder and successor disagree in front of the team. That practical layer is what a Handover Charter is for, as the article on family constitutions and handover charters explains.

This is a general definition only. The family should involve its lawyer and accountant in drafting or changing a shareholder agreement.