A shareholders’ agreement is a private contract recording how the company will be run and how its shareholders will deal with one another. Its value lies in setting expectations early. The usual flashpoints are predictable: disagreements over business decisions, unequal contributions of money, time or resources, disputes over profits, unclear management responsibilities, a shareholder who wants to leave, and the arrival of new investors. Each is far cheaper to manage on paper today than in a boardroom tomorrow.
Define roles and decision-making
State who is responsible for what, who may appoint and remove directors, and how votes are counted. Then separate ordinary management, which the board or managers should handle without interference, from reserved matters that need shareholder approval. Typical reserved matters include issuing new shares, borrowing above an agreed limit, selling major assets, changing the nature of the business and entering related-party transactions. Specify which need a simple majority and which need a higher majority or unanimity.
Record the money
Document each shareholder’s percentage, initial capital and any future funding obligations. Agree what happens if someone cannot contribute: dilution of their shareholding, a loan from the others on stated terms, or an orderly sale. Set a dividend policy too, covering how much profit is retained for growth, how much is distributed, and when.
Control entry and exit
Restrict transfers to outsiders and give existing shareholders a right of first refusal, so that nobody is surprised by a new partner. Where investors are involved, consider tag-along and drag-along rights. Agree how shares will be valued on exit, for example through an independent valuer or a stated formula, and what happens on voluntary departure, death or incapacity. These terms are far easier to accept before anyone knows who will be leaving.
Plan for deadlock
Where two shareholders each hold half, or a minority holds a veto, disagreement can paralyse a company: contracts go unsigned and bank mandates stall. Build an escalation ladder: structured negotiation between the principals, then mediation, then arbitration or a defined buy-sell mechanism. A clear route keeps the business operating while the disagreement is resolved.
Align the agreement with the Articles
An agreement binds only those who sign it, whereas the Articles are the company’s own constitution. Section 26(1) of the Companies Act No. 10 of 2017 provides that the articles “shall have the effect of a contract between— (a) the company and each member; and (b) amongst the members.” The two documents must therefore tell the same story. Where they contradict each other, you invite the very dispute you hoped to avoid.
Amendment is the pressure point. Under section 27(1) of the same Act, “a company may amend its articles by passing a special resolution”, defined as not less than seventy-five per cent of the votes at a duly convened meeting, or a higher majority if the articles require. In practice, a shareholder or group holding more than a quarter of those votes can generally block such a change, while a smaller holder cannot protect itself. Key protections should appear in both documents, and the agreement should oblige shareholders to vote so as to give effect to it.
Build in the new transparency duties
The Companies (Amendment) Act No. 23 of 2025, in force since 30 December 2025, has tightened beneficial ownership rules. Section 356B of the Companies Act No. 10 of 2017, as inserted by that Amendment Act, obliges a company that knows, or has reasonable grounds to believe, that a natural person is its beneficial owner to ask that person to confirm the status, and provides: “A person shall, within fourteen days of receipt of the request referred to under subsection (3), furnish the requested information, in writing, to the company.” Failure is an offence. Your agreement should therefore require every shareholder to supply and update ownership information promptly, warrant its accuracy and accept agreed consequences for default.
A final word
A shareholders’ agreement is not a sign of distrust. It is how serious partners protect both the business and each other. Draft it at the start, review it as the company grows, and take advice tailored to your circumstances.
This article is for general information only and does not constitute legal advice.
Patrick Chulu Legal Practitioners (PC|LP)
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