What shareholders agreement means
A shareholders agreement is a contract among the owners of a company, and usually with the company itself.
It sits alongside the constitutional documents. The memorandum states what the company is for and the articles govern how it operates internally, and both are filed at the CAC and are public.
The shareholders agreement is private. It records the commercial understanding between the owners: who decides what, what each contributes, how shares can be sold, what happens if somebody leaves, dies or stops working, how deadlock is broken, and how the relationship ends.
That commercial understanding exists in every company. In most Nigerian private companies it exists only in the founders' heads, which works until it does not.
The moment it stops working is always the same: somebody wants out, somebody stops contributing, somebody dies, or an investor arrives and asks what was agreed.
How it is used
A workable agreement covers a settled list.
Shareholding and what each party contributed, whether cash, assets, intellectual property or work.
Governance: who appoints directors, how the board is composed, what a quorum is.
Reserved matters: decisions that need the consent of specified shareholders regardless of who holds a majority.
Information rights: what accounts and reports shareholders receive and how often.
Dividend policy: whether profits are distributed and on what basis, which prevents the commonest minority grievance.
Transfer restrictions: pre-emption rights, drag along and tag along.
Leaver provisions: what happens to a founder's shares if they leave, and whether the treatment differs for a good leaver and a bad one.
Vesting, so that equity is earned over time rather than owned on day one.
Deadlock resolution, for companies with two equal shareholders.
Restrictive covenants and confidentiality.
And dispute resolution.
The agreement should be signed before the money and the work start, not afterwards.
Key features
- A private contract between shareholders and usually the company
- Sits alongside the public memorandum and articles
- Covers governance, reserved matters, transfers, leavers and exit
- Not filed at the CAC and not visible to third parties
- Binds only those who sign it
- Should be signed before contributions and work begin
How this works in Nigeria
Most Nigerian private companies have no shareholders agreement, and the consequences follow a predictable pattern.
Two or three people incorporate, agree a split verbally, and start. One does most of the work. Another contributes capital and disappears. A third leaves after eighteen months still holding a third of the company. There is nothing to point to, and the person who stayed is now building a business a third of which belongs to somebody who left.
Vesting solves that and it has to be agreed at the start. Equity that vests over a period, with a cliff, means a founder who leaves early keeps only what they earned.
The second Nigerian pattern is the minority squeeze. A majority holder takes a large salary, never declares a dividend, and the minority receives nothing for years. CAMA provides remedies for conduct that is unfairly prejudicial, and litigation is slow. A dividend policy and reserved matters in a shareholders agreement prevent it far more effectively.
The third is death. A founder dies, their shares pass into their estate, and the surviving founders find themselves in business with the family. A shareholders agreement can provide that the survivors or the company may buy the shares, and key person insurance can fund it.
Where the agreement and the articles conflict, the position is not straightforward. The articles are the constitutional document and matters of company law operate through them, so anything the agreement provides that needs to bind the company as a matter of company law should be reflected in the articles as well.
Shareholders agreement vs articles of association
Two documents governing the same company, with different characters.
The articles of association are the company's constitution. They are filed at the CAC, they are public, they bind the company and its members as a matter of company law, and they are amended by special resolution, which a majority can pass.
A shareholders agreement is a private contract. It is not filed and not public, it binds only the parties who signed it, and it can only be amended with the agreement of those parties, which protects a minority in a way the articles cannot.
That last point is the practical reason both exist. A minority shareholder relying on the articles alone can be outvoted on a special resolution amending them. A minority shareholder who is party to a shareholders agreement requiring unanimity for defined changes cannot be.
A well structured Nigerian company has both, and they should be drafted together so they do not conflict.
Limits and risks
The agreement binds only the parties. A new shareholder who does not sign is not bound, which is why transfer provisions should require any transferee to adhere to it.
It is also contractual rather than constitutional, so where a matter operates through company law the articles may need to reflect it.
Enforcement means litigation or arbitration, which is slow, so the practical value lies in preventing disputes rather than in winning them.
And it cannot make people cooperate. A deadlock provision produces a mechanism, not a working relationship, and companies where the shareholders cannot function usually end through the exit clause rather than through the governance ones.
Worth knowing
Sign the shareholders agreement before the money moves and the work starts. Nigerian founders build for two years on a verbal understanding, and the agreement is only ever attempted after somebody has already left holding equity nobody wants them to keep.
Questions people ask
What is a shareholders agreement?
A private contract between the shareholders, usually with the company, covering governance, reserved matters, information rights, dividend policy, transfer restrictions, leaver provisions and exit.
How does it differ from the articles of association?
The articles are the public constitutional document filed at the CAC and amendable by special resolution. The agreement is private, binds only those who sign, and can only be changed with their agreement, which is what protects a minority.
Do I need one if we are just two founders?
Especially then. Two equal shareholders have no mechanism for breaking a deadlock, and no provision for what happens when one leaves, unless the agreement creates one.
What is the most important clause?
Vesting and leaver provisions in a founder company, because the commonest failure is a founder leaving early and keeping equity they never earned. In an investor company, reserved matters usually matter most.
What happens if a shareholder dies?
Without provision, the shares pass into their estate and the survivors are in business with the family. The agreement can provide that the survivors or the company may buy the shares, and key person insurance can fund it.
Is it filed at the CAC?
No. It is a private contract and is not filed or public, which is one of its advantages. Anything needing to bind the company as a matter of company law should also be reflected in the articles.