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Contract Knowledge Centre · Ownership
An agreement between a company's shareholders governing control, share transfers, information rights and exit, alongside the company's constitution.
Shareholding alone answers very few of the questions that arise between owners. Control, reserved matters and transfer restrictions are what actually determine how a company is run and how anyone gets out.
What each clause is for, and what to look at in the wording you have been given.
Reserved matters
Lists decisions requiring shareholder consent.
What to check: That the list is workable, and does not paralyse ordinary operations.
Board composition
Sets who appoints directors.
What to check: Whether control of the board matches the intended balance of power.
Pre-emption on transfer and issue
Controls dilution and who may become a shareholder.
What to check: The process, timing and valuation mechanism.
Drag and tag rights
Governs what happens on a sale of the company.
What to check: Whether a minority can be dragged along, and whether they can require inclusion in a sale.
Information rights
Ensures shareholders can see how the company is performing.
What to check: What is provided, how often, and to whom.
Deadlock and exit
Provides a route out of an impasse.
What to check: That a mechanism exists at all - many agreements simply have none.
Any one of these can have an innocent explanation. Ask for it before you sign.
When to speak to a lawyer