What Is a Partnership & Shareholder Agreement (SHA)?
Definition and Purpose of Partnership Agreements
A partnership agreement typically regulates the contribution, profit share, and exit rules for partners in a business, and is crucial to establish because the law’s default position often leads to unfair outcomes.
What a Shareholders Agreement Covers
A shareholders agreement (SHA) governs the relationship between a company’s owners, for example, how shares are issued or transferred, what decisions require shareholder approval, and how disputes are resolved. Because the law only sets out a minimum standard, an SHA is needed to capture the true commercial arrangement.
Why Companies Need Clear Ownership & Governance Documents
Companies’ ownership and governance rules are rarely straightforward, and ambiguities can cause serious disagreements, for example, when co-founders cannot agree on how to value or exit the business. Partnership and shareholders agreements help to prevent such disagreements.
Partnership Agreement vs. Shareholder Agreement:
Key Differences
Ownership vs. Management Rights
In a partnership, the same people are typically both owners (have an economic interest in the business) and managers (take active roles in running the business). By contrast, a company’s owners are its shareholders and its managers are its directors.
Profit Distribution, Voting Power & Responsibilities
Partners in a partnership typically share profits and voting power according to their respective contributions to the business. In a company, the board of directors decides on dividends and major decisions for the company, and its voting power is typically determined by the number of issued shares owned by each shareholder. Furthermore, directors have fiduciary duties to the company in addition to any personal interests they may have in the company’s affairs.
Company and Partnership Structures Compared
A partnership is generally a simpler structure, but has the disadvantage of potentially unlimited liability for its partners. A company provides limited liability for its shareholders, but is subject to more disclosure and regulatory requirements. This means a company often needs a more detailed SHA.
When a Business Needs Both Documents
Some businesses are set up as a company but owned by multiple entities that need to regulate their joint ownership, or by individuals who are unincorporated partners, but want to establish a formalised relationship around managing an incorporated entity.
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Essential Clauses in Partnership and Shareholder Agreements
Capital Contributions, Equity & Ownership Structure
A partnership or shareholders agreement should set out the respective contributions of each party to the business and any subsequent changes to ownership, for example, new capital injections and dilution rules or penalties for failing to contribute a required amount of capital.
Bespoke Partnership and Shareholders Agreements
Why a Standard Template May Not Fit Your Business
A shareholder partnership agreement template may help owners identify topics to discuss, but it cannot decide how their business should be governed. We focus on drafting an agreement around the actual ownership structure, funding commitments, decision-making process and exit expectations, rather than supplying ready-made templates.
Customization for Different Company Types (LLC, LTD, Startup, Joint Venture)
A partnership agreement for a start-up business will typically have different considerations than one for an established limited company, or a partnership set up as a joint venture between two existing businesses. Similarly, an agreement for an LLC, a Ltd or private company will have different requirements and considerations.
Partnership & Shareholder Agreements for Different Business Models
Agreements for Startups and Early-Stage Companies
Startups will typically need a partnership or shareholders agreement that includes founder vesting provisions, early assignment of any valuable intellectual property rights, clauses relating to any dilution or further funding rounds, and a streamlined dispute resolution procedure. These types of agreements typically allow for relatively easy amendments as the startup grows and needs more funding.
Legal Services for Partnership and Shareholders Agreements
Full Drafting and Legal Review
We can either prepare a full partnership or shareholders agreement from scratch or review an agreement prepared by someone else, ensuring that every clause reflects the true commercial arrangement and is enforceable under applicable law.
Governance, Compliance & Corporate Documentation
We can also assist with any additional documentation required to support a partnership or shareholders' agreement, such as resolutions, register of members or directors, certificates of incorporation, and articles of association.
Negotiation Support Between Founders and Investors
We can advise on how to implement the terms included in a term sheet as a binding agreement, and assist in negotiating appropriate investor protections and obligations that are not overly demanding on the company’s resources.
Ensuring Enforceability in Multiple Jurisdictions
Where a business operates in more than one jurisdiction, we can ensure that the agreement will be enforceable in all relevant jurisdictions and include any jurisdiction-specific requirements.
Ongoing Legal Support for Governance Updates
As a business grows, its governance needs often evolve, for example, to reflect new shareholders, additional capital raising activities, or complex reorganisation of a joint venture structure. We can update the agreement to ensure that it always reflects the reality of a company’s ownership and decision-making structures.
Why Choose Our Partnership & Shareholder Agreement Lawyers
Extensive Corporate & Partnership Law Expertise
Our team has advised numerous businesses in different industries and of different sizes on their governance and ownership structures.
Clear, Balanced, and Legally-Robust Agreements
We can help you establish legally binding yet clear and balanced agreements, avoiding overly favourable terms for one party.
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Tailored Solutions for Multi-Founder & Multi-Shareholder Companies
We appreciate the different decision-making and exit needs of different stakeholders and help create agreements that reflect these needs.
Cross-Border Legal Support for International Companies
We support businesses that operate across jurisdictions in establishing enforceable international agreements.
Partnership and Shareholders Agreements in International Business
Jurisdictional Requirements & Governing Law
The law in different jurisdictions can impose significantly different requirements on the ownership structures of businesses, and on the rights and obligations of shareholders and partners. A shareholders' or partnership agreement must therefore comply with the laws of the jurisdiction where the company is incorporated, and potentially others if the company operates in more than one jurisdiction.
Structuring Ownership for International Expansion
When expanding internationally, businesses need to establish additional entities, such as subsidiaries or holding companies, or partner with local entities in a joint venture. These structures need to be governed by a detailed agreement between the stakeholders involved.
Cross-Border Share Transfers, IP Rights & Tax Considerations
International business agreements add additional layers of complexity, for example, around the approval process for share transfers, the ownership of intellectual property rights, and tax considerations.