The document that resolves the dispute in a week
In short
- Transfer restrictions, deadlock mechanisms, exits and valuation, decided in advance.
- Written while relations are good, because afterwards it is too late.
- Checked against the articles, because when the two disagree, the wrong text wins.
A shareholders' agreement is the private contract between the owners of a company about how they will own it together: who can sell, to whom, at what price, what happens when they cannot agree, and how someone leaves. It is the machinery that turns a two-year dispute into a one-week procedure.
We draft them for new companies, negotiate them for people joining existing ones, and, from the other side of the practice, we litigate what happens when there is none. That second experience is what shapes the drafting.
Send us the cap table
Tell us who holds what, what each person contributed, and what worries you. We reply within one business day with the mechanisms the agreement needs and a fixed fee for drafting it.
The load-bearing clauses
What a working agreement actually contains
Not boilerplate. Machinery.
Transfer restrictions and pre-emption, so shares cannot walk out of the room to a stranger. Tag-along, so a minority cannot be left behind in a sale; drag-along, so a small holding cannot block one. Reserved matters, so the things that could sink the company need more than a bare majority.
Deadlock provisions chosen deliberately rather than copied: an escalation ladder first, and then a buy-sell mechanism that fits the shareholders it will bind. A shotgun clause is clean between equals of similar means and brutal between unequal ones; sealed-bid and auction mechanisms distribute the pressure differently. The wrong mechanism is worse than none, because it hands the better-funded side a weapon.
Valuation: who values, on what assumptions, and what happens when a party disputes the number. Leaver provisions for shareholders who work in the business: what a departing founder keeps, and what good and bad leaving mean. Dividend policy in writing, because "we always said we would reinvest" is the opening line of many disputes.
Agreement and articles
Two documents, one deal
When they conflict, the wrong text wins by default.
That the articles bind everyone is not a convention, it is section 21(1) of the Companies Law, Cap. 113: once registered, the memorandum and articles bind the company and its members to the same extent as if they had been signed and sealed by each member, and they contain an agreement on the part of each member to observe all their provisions. Section 21(2) adds that money payable by a member under them is a debt due from that member to the company. The shareholders' agreement binds only those who sign it. Some machinery only works if it lives in the articles, some belongs in the private agreement precisely because the articles are public. Part of the drafting is deciding what goes where, and aligning the two so that neither contradicts the other.
Between the people who sign it, the agreement is a contract like any other, and its clauses are enforceable as such: the Supreme Court has enforced a contractual buy-out exactly as the agreed formula provided, and the innocent party could choose between damages and specific performance. What the agreement cannot do by itself is compel an act of the company, which is why anything that needs the company bound, a veto in the quorum, a transfer restriction with teeth, is written into the articles as well.
New shareholders are bound by a deed of adherence before their shares are registered, so the agreement does not quietly dissolve as the cap table changes.
If you own a company with other people, tell us what each of you owns and whether anything is already in writing between you, at office@kleanthousplatis.com, or the enquiry form. We reply within one business day.
The alternative, honestly stated
What happens without one
The statute is a safety net, not a plan.
Without an agreement, a shareholder's protections are the articles, usually a template nobody read, and the Companies Law. What that gives a minority is section 202, the alternative remedy to winding up in cases of oppression: a member complaining that the company's affairs are being conducted in a manner oppressive to some part of the members, including themselves, may apply to the court, and where the court finds both that they are and that a winding up would unfairly prejudice that part of the members although the facts would otherwise justify a winding-up order on just and equitable grounds, it may make such order as it thinks fit, whether regulating the future conduct of the company's affairs or ordering the purchase of a member's shares by other members or by the company itself with a corresponding reduction of capital. It is a real remedy and a slow one. The oppression route works, we run it, but it is litigation: slower, costlier and less predictable than a clause that already answers the question. The comparison is the honest sales pitch for the drafting: see Shareholder Disputes in Cyprus.
Joining an existing company
Reviewing the agreement you are asked to sign
For investors and key employees receiving equity.
The clauses to price before signing: the drag threshold that can force your exit, leaver provisions that can strip equity you thought was earned, dilution and pre-emption on new issues, and the reserved matters list that tells you what your stake can and cannot influence. The review is a fixed fee and a written note, before you are bound, not after.
Common questions
We agreed everything verbally when we started. Does that count?
An undocumented understanding is evidence of what was agreed, and a source of years of argument about it. If the understanding is real, writing it down is cheap. If it does not survive being written down, it was never an agreement.
Does the agreement bind someone who buys shares later?
Only if the machinery makes it so: a deed of adherence signed before the transfer is registered. We build that requirement into the agreement and the articles together.
Which wins if the agreement and the articles conflict?
As a rule, the articles govern the company, and section 21(1) of Cap. 113 is why: registered, they bind the company and its members as if signed and sealed by each of them, while the shareholders' agreement binds only its signatories. a corporate act done in accordance with them stands, and breach of the agreement gives the wronged shareholder a contractual claim against the others rather than undoing the act. That is exactly why the two documents are drafted and amended together, so the question never has to be answered in court. Where a conflict already exists, take specific advice quickly.
When should we review it?
On every change of shareholding, on any investment round, and when the business itself changes shape. An agreement written for two founders rarely fits five shareholders and an investor.
Who leads this work
Between them the partners bring more than 40 years of practice in Cyprus. Every matter is run by one of them.
Andreas Kleanthous
Partner
Litigation, personal injury and insurance claims, debt recovery, administrative law, real estate, wills and probate.
Klitos Platis
Partner
Litigation, corporate and commercial matters, property and construction, including pleadings, interim applications and trial preparation.
Written on this subject
Directors' Duties Under Cyprus Law: What They Require in Practice
CorporateDirectors' Duties When a Cyprus Company Is Insolvent
CorporateNorwich Pharmacal Orders in Cyprus: Disclosure Against a Third Party
LitigationAll our writing is on the writing index. Related: Litigation & Arbitration, Restructuring & Insolvency and Trusts, Wills & Succession.
Before instructing, tell us who is involved, what has happened and any deadline you are working to. Once the conflict check is clear we will ask for the existing documents, the names of the parties, and any deadline you are working to.