Shareholder's agreement


Drawing up a shareholders’ agreement is an essential part of starting and reorganizing business operations. Especially in entrepreneur-owned companies, i.e., companies whose owners actively participate in business operations, drawing up a shareholders' agreement is very important.

The Companies Act regulates the activities of limited companies, but often the Companies Act does not provide sufficient security to protect the interests and influence of all shareholders. It is also possible to include certain provisions in the articles of association, but even a comprehensive article of association does not replace the need for a shareholders' agreement. Nevertheless, it is good to include publicly visible conditions in the articles of association, such as the share redemption clause. A shareholders’ agreement on the other hand is an agreement between shareholders that is not public.

A wide variety of issues which the shareholders consider important precisely in terms of their own business operations can be agreed upon in a shareholders' agreement. Typically, the most important matters to be agreed upon in an agreement are the important principles of the company's administration and the shareholders' operations, as well as actions in situations of separation from the company's ownership and in situations where it is necessary to expand the company's shareholder base. In the worst case, the absence of a shareholders' agreement or a negligently drawn up shareholders' agreement can endanger the company's business conditions.



The Companies Act contains provisions on the activities and decision-making of the board of directors and the general meeting. According to the law, the general meeting can, depending on the matter, make decision either by the power of a simple majority or by a qualified majority. The board's decision will also be the opinion of the majority.

With the shareholders' agreement, it can be agreed, for example, that certain decisions essential to the company's operations require the consent of all shareholders, or that certain important matters under the board's decision-making power are decided unanimously. The shareholders' agreement can also stipulate that certain important decisions require the consent of key shareholders. For example, the founding members of the company can be given greater decision-making power than the statutory power.

A shareholders' agreement can also freely regulate other operating principles related to the company's business, such as financing the company, working for the company and its conditions as well as profit sharing. Key conditions also include agreeing on whether and to what extent the partners can engage in business that competes with the company or is otherwise separate from the company's operations.



One of the most important terms of a shareholders' agreement includes provisions on how shareholders can or must give up their share ownership, as well as the principles of how new shareholders can be included in the company.

According to the Companies Act, the right to transfer shares is integrally associated with the shares. This right can only be limited in the articles of association by including redemption and consent clauses in the articles of association. However, in an entrepreneur-owned company, it is clear that the free transferability of shares could be very damaging in terms of operations. Generally, a shareholders' agreement includes terms based on which the company or other shareholders have the right to redeem the shares of the departing shareholder, and that the shares may not be transferred to outsiders.

In an entrepreneur-owned company, the company's operation is based on the active participation of the owners for the benefit of business operations. If the cooperation does not go well, and one of the shareholders violates the terms of the shareholders' agreement, the company or other shareholders must have the opportunity to redeem the shares of the shareholder who violated the agreement to secure the continuation of business operations. Shareholders' obligations must be defined precisely enough in a shareholders' agreement so that a violation can be demonstrated without difficulty.

A shareholders' agreement must therefore agree on terms for various situations, such as situations where one of the shareholders wants to give up their ownership, or where one of the shareholders violates the provisions of the shareholders' agreement or otherwise (for example due to incapacity) becomes unable to fulfil the requirements of the shareholders' agreement.

The pricing of the redemption of shares should be carefully considered, and usually the redemption price of shares is defined on very different grounds in different situations. The shares of the partner who broke the contract are usually redeemed at a lower price than the shares of the partner who became incapacitated.

The key terms of a shareholders' agreement related to the transfer of shares are also the terms that usually agree on the rights and obligations to sell the shares in acquisition situations.



In a shareholders´ agreement, it is also important to include sanctions for breach of contract. Effective sanction consists of contractual terms related to contractual monetary penalties, the obligation to sell shares, and the obligation to compensate for damages. Due to freedom of contract, sanctions are subject to agreement. If sanctions are not added to the contract, breaches of contract can be very difficult to effectively plead.

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