A shareholders' agreement is tested exactly once: when the shareholders stop agreeing. Everything else about it is filing. In our experience the agreements that hold up are not the longest ones, and they are rarely the ones drafted from the most impressive template. They are the ones where five specific provisions were actually thought about rather than inherited.
1. The deadlock mechanism
Equal shareholdings feel fair at incorporation and become paralysing later. An agreement with no deadlock provision leaves the company dependent on the goodwill of people who, by definition, have stopped extending it. A workable mechanism — sealed bid, escalating buy-sell, or referral to an independent chair with a casting decision — costs nothing to include and is close to impossible to negotiate once relations have broken down.
2. The valuation formula
"Fair value as determined by an independent valuer" sounds neutral. It is an invitation to a second dispute about the valuer, the basis and the discounts. Specify the methodology, the appointment mechanism, whether minority discounts apply, and the timetable. The formula does not have to be sophisticated; it has to be unambiguous.
3. Reserved matters
The reserved-matters list defines what the majority cannot do alone. Lists copied wholesale from precedent tend to be either so long that the company cannot function or so short that a minority holder has no protection at all. Draw the list from what would actually harm this business: related-party transactions, changes to the capital structure, disposal of key assets, and material borrowing.
4. Transfer restrictions and drag/tag
Pre-emption rights, drag-along and tag-along must be internally consistent, and the thresholds must reflect the actual cap table rather than a generic 75%. Check that the drag threshold is achievable by the shareholders who would realistically drive an exit, and that tag rights cannot be circumvented by structuring a sale as a subscription.
5. Leaver provisions
Founder equity that vests on nothing and forfeits on nothing is the single most common defect we find in early-stage cap tables. Good leaver and bad leaver definitions, vesting schedules and compulsory transfer provisions should be settled before there is a reason to argue about them.
A practical test: hand the agreement to someone who has never seen it and ask them what happens if one shareholder wants out tomorrow. If they cannot answer from the document alone, the document is not finished.
None of this is exotic drafting. It is a question of whether the provisions were considered against this company's actual ownership and this company's likely failure modes, or whether they arrived with the template. If you are unsure which describes your agreement, that is usually the answer.
