Shareholders' agreement

A shareholders' agreement is a private agreement entered into by the partners or shareholders of a company that governs their internal relationships, complementing the bylaws. It usually covers matters such as the composition and operation of the board, quorums for key decisions, restrictions on the transfer of shares (rights of first refusal, tag along, drag along), non-compete clauses, dispute-resolution and exit mechanisms, and the treatment of new investment rounds. For startups, the shareholders' agreement is especially relevant in defining founder vesting, the employee option pool and investors' rights. A well-structured agreement prevents conflicts and provides certainty to founders and investors alike.