English
9 Questions to Ask Before Signing a Shareholder Agreement With Your Business Partner
In a corporation, a shareholder agreement always exists. Without it, no deal goes through. After that comes the constant battle — options, vetoes, dividends, cash flow gaps. It’s expensive and brutal, but at least there’s no illusion of “we’re friends, we’ll figure it out.” And yet — we do figure it out. At xTech, we definitely do.
Why Private Businesses Skip the Shareholder Agreement (And Pay for It Later)
In private business, a shareholder agreement almost never exists. I didn’t have one in any of my projects — until recently, when I finally decided to draw one up. The whole process is a real ordeal: with your partner (“you don’t trust me?”), with yourself (“why bother right now”), with the calendar. But it’s worth every minute — each point you were too embarrassed to raise “while things are going well” eventually blows up.
I took a working checklist from joint venture negotiations in a corporate format and translated it into the language of a business owner. Use it — especially if you haven’t yet.
The 9 Questions Every Shareholder Agreement Should Cover
Nine questions. Before you sign — or before it’s too late.
- Control option
Who can increase their stake to a controlling one, and under what conditions? Price, timeline, acceptance trigger.
In a corporation: this is a battle over the future balance of power.
In private business: “what if one of us wants to buy the other out in a year — at what price?” Without an answer, the price becomes emotional leverage.
- Lock-up: exit and share sale
Can a partner sell their stake to a third party? Exit early? What’s the lock-up period?
In a corporation: standard practice.
In private business: “we’re in this forever” — until one partner finds an investor and presents the other with a fait accompli.
- Board of directors and CEO
Who appoints the board? How is the CEO removed? Does everyone need to agree?
In a corporation: a war over seats.
In private business: “the partner runs operations” — but can’t be removed because it was never written down.
- Veto rights and deadlock
What decisions require unanimity? What happens if you’re stuck?
In a corporation: the most contentious section of any shareholder agreement.
In private business: a deadlock without a procedure equals business paralysis and mutual accusations over WhatsApp.
- Dividends
When do we pay out? How do we calculate? Is there a mandatory payout or “at the board’s discretion”?
In a corporation: capital policy.
In private business: one partner wants cash, the other wants to reinvest. Without a rule, this fight happens every single month.
- Cash flow and additional financing
What if there’s a cash gap between contributions? Who tops it up? On what terms — loan, conversion, or dilution?
In a corporation: almost always included.
In private business: “we need another $1.5M” — and that’s when you find out who’s run out of runway.
- Dependency on a partner’s expertise
Does the business run on contracts, IP, or a team belonging to one partner? What happens if that partner changes control or walks away? Are there separate contracts, SLAs, or licenses between the partner and the business?
In a corporation: due diligence, always.
In private business: “he handles all the development” means the entire business rests on one person with no contract in place.
- Non-compete
Can a partner simultaneously run a similar business in the same region?
In a corporation: almost always included.
In private business: too awkward to ask — then the partner opens “basically the same thing, but theirs” right next door.
- Licenses and regulatory compliance
Who is responsible for licenses, certifications, and accreditations? Who’s liable if they’re denied or revoked?
In a corporation: a compliance checklist.
In private business: remembered only when you can no longer legally operate.
One Hard Conversation Now — Or Months of Fallout Later
Better to go through this difficult process once now than to deal with the consequences for months — or years — down the road.