Shareholders’ agreements are signed at the point of greatest mutual goodwill and consulted at the point of least. That timing explains why so many are inadequate: the provisions that matter address situations nobody wants to discuss at the outset.
Decide who decides what
Distinguish operational decisions from those requiring shareholder agreement, and within the latter, which need unanimity rather than a majority.
Reserve unanimity for a short list — issuing shares, taking on significant debt, selling the business, changing what the company does. A long list of unanimous matters produces paralysis, which is the opposite of protection.
Address deadlock explicitly
Two equal shareholders who disagree, with no mechanism, means a company that cannot act. Decide in advance how it breaks: a casting vote, an independent chair, an agreed expert, or a buy-sell mechanism where one names a price and the other chooses which side of it to take.
The mechanism is less important than having one. Its main value is that its existence makes it rarely necessary.
Plan for departure, including the involuntary kinds
What happens when a shareholder wants to leave, stops working in the business, dies, divorces, or becomes incapable? Each needs an answer: whether the shares must be offered to the others, how they are valued, and over what period they are paid for.
Valuation is where these agreements most often fail. “At fair value” without a stated method produces a dispute exactly when relations are worst. Name the method or the valuer, and state who pays for it.
Say what each founder is committing to
Full time or part time, for what pay, and with what restriction on competing activity. Founders frequently contribute unequally, and an unaddressed inequality becomes a serious grievance in year two.
A short agreement covering these four areas is worth considerably more than a long one that covers everything except them.