What a shareholder agreement settles

A shareholder agreement is the document that says how the owners of a business have agreed to behave towards one another. In a family group it typically settles four things: how a decision is voted on, how a share may be transferred, how a dividend is decided, and what happens when the owners cannot agree.

Families routinely stall on this document for years, and the reason is almost always the order in which the four are approached. Starting with transfer means starting with the question of who might one day want to leave, which most families are not willing to discuss in the abstract. Starting with voting means starting with something everyone already has a view on: what needs all of us, what needs most of us, and what the board should simply get on with.

The other three follow more easily once voting is settled, because by then the family has established that it can make a decision about itself in writing.

One test matters more than the drafting: the agreement and the company's articles have to say the same thing. A family that has both, saying different things, is in a worse position than a family that has neither.