Vesting, good leaver / bad leaver, drag-along, tag-along, pre-emption, and deadlock — the clauses that determine how much control you actually have when co-founders or investors disagree.
A shareholder agreement governs how shareholders relate to each other and to the company. It fills in what the Articles of Association do not cover: founder departure mechanics, dispute resolution between co-founders, approval thresholds for major decisions, and restrictions on share transfers. The Articles are a public document filed at the Companies Registry; the shareholder agreement is private. Both matter, and their interaction — particularly on reserved matters and board authority — needs to be thought through carefully.
Before you take any external investment, have a shareholder agreement among the founding team. The key provisions are:
Founder vesting is the mechanism by which a founder's shares are earned over time, rather than received in full on day one. Without vesting, a co-founder can leave six months into the business and retain 40% of the company — creating a deadweight on your cap table and a serious problem for investors.
A typical vesting schedule is four years with a one-year cliff: the founder receives 25% of their shares after 12 months, and the remaining 75% vests monthly over the following three years. On a company sale, unvested shares typically vest fully under single trigger acceleration, or partially vest if the founder is also terminated without cause under double trigger acceleration.
When a founder or employee shareholder leaves, their unvested shares are bought back at a price depending on whether the departing person is a good leaver (resigned on agreed terms, retired, died, became permanently incapacitated) or a bad leaver (resigned without notice, was terminated for cause, breached obligations). Good leavers typically receive fair market value; bad leavers typically receive the lower of par value and fair market value. The definitions matter enormously — always review them carefully.
Specify which decisions require unanimous consent of the founders, which require a majority, and which can be made by individual directors. This prevents the paralysis that arises when founders have equal shares, equal votes, and a disagreement they cannot resolve.
Existing shareholders typically have the right to participate in new share issuances on a pro-rata basis before shares are offered to outside investors. Pre-emption rights on new issuances are distinct from pre-emption rights on transfers (the right of first refusal when an existing shareholder wants to sell their shares).
A drag-along clause allows a specified majority of shareholders to require all other shareholders to sell their shares on the same terms to a third-party acquirer. Without drag-along, a minority shareholder can block a company sale by refusing to sell. The threshold, notice requirements, and same-terms protections all need to be carefully defined.
If a majority shareholder sells their stake, minority shareholders have the right to participate in the sale on the same terms. This protects minority shareholders from being left holding shares in a company now controlled by a third party they did not choose.
Investors typically require monthly or quarterly management accounts, annual audited financial statements, and an annual budget. Information rights are non-negotiable for most institutional investors — but you can negotiate scope, frequency, and confidentiality obligations.
Options include a casting vote for the chairman, escalation to senior management, mediation, and as a last resort a shotgun clause (one party offers to buy the other's shares at a stated price; the other party can accept or buy at the same price). These provisions are important to have — and rarely used, which is the point.
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