Glossary · Fundraising process · Updated 28 August 2026
A shareholders' agreement is the private contract governing the relationship between a startup's shareholders: who can sell shares and on what terms, who decides what, and what happens when a founder leaves. It sits alongside the public articles of association and covers what those cannot.
Articles of association are filed publicly and readable by anyone. The shareholders' agreement stays confidential between signatories, which is where the genuinely sensitive clauses live: put and call options, exclusivity undertakings, board seat allocation.
The clauses that matter fall into three families. Those controlling exit from the cap table (pre-emption, transfer approval, lock-up), those organising a joint sale (tag along to protect minorities, drag along to compel them), and those handling a founder's departure (vesting, bad leaver).
Founder vesting is the most underestimated item. It means your own shares only become definitively yours over time. It protects the company — a cofounder who leaves after eight months does not keep a third of the equity — but you want to understand the mechanics before signing, not after.
Example: standard clauses in a seed shareholders' agreement
A configuration commonly seen on a €1–2M European seed round.
| Founder vesting | 4 years, with a 12-month cliff |
|---|---|
| Bad leaver | Shares bought back at nominal value for serious misconduct |
| Good leaver | Buyback at the last round's market value |
| Lock-up | 3 years for founders |
| Pre-emption right | For existing shareholders, pro rata |
| Tag along | Triggered on any change of control |
| Drag along | On a 75% shareholder vote |
| Information rights | Monthly reporting, annual budget approved by the board |
With a 12-month cliff, a cofounder leaving at month 10 keeps nothing. Leaving at month 18, they keep 18/48 — 37.5% of their original allocation.
The common mistake
Treating the agreement as post-negotiation paperwork. Drag along and bad leaver decide what happens to you in the two most likely scenarios — a forced sale and a cofounder departure — and are far harder to negotiate once the term sheet is signed.
Frequently asked questions
How does a shareholders' agreement differ from the articles of association?+
Articles are public, filed with the registry, and govern how the company operates. The shareholders' agreement is a private contract between shareholders governing their relationship. Where they conflict, the articles prevail as a matter of company law, but the agreement still binds its signatories contractually.
What is a drag along clause?+
It lets a defined majority of shareholders compel minorities to sell on the same terms when an acquisition offer arrives. Without it, a shareholder holding 2% could block the sale of the entire company.
Related terms
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