Corporate

Shareholders' Agreement (SHA)

4min

⚡TL; DR

  • The SHA is the most important document of the company.
  • Be aware that it will likely be amended and replaced with each financing round.
  • Book a free call with us.

In Switzerland, an SHA is a private contract between all shareholders, which is not mandated by law but is highly recommended to govern the relationship between shareholders and set clear rules for managing the company. It describes how the company should be operated and outlines shareholders' rights and obligations.

The main goals of a SHA are to:

  • ensure that shareholders are treated fairly and that their rights are protected;
  • provide safeguards for selected positions (minority shareholders, majority shareholders, founders, etc.); and
  • provide some mechanisms (Right of First Refusal, Tag Along, Drag Along, purchase options) that allow shareholders to (i) decide which outside parties may become future shareholders or (ii) force other shareholders to sell their shares.

When do I need to have a SHA?

  • The SHA is a key document that needs to be introduced as soon as possible from the moment there is more than one shareholder, for example upon incorporation.
  • The SHA is usually replaced with every financing round, as new investors will want to negotiate some or all of its contents.
  • Founder vesting/sweat equity: What happens if a founder leaves after three months? Make sure no one leaves with 30% without having put in the 'sweat'.
  • Board composition and decision rights: Who is on the board and what types of decisions can be made with what majorities (e.g., who can fire the CEO)?
  • Purchase options: In certain "trigger events", such as a founder leaving as a "bad leaver", the other shareholders have the right to buy the shares at a defined value.
  • Righ of First Refusal (ROFR): Before a shareholder can sell their shares to another party, they must offer the shares to the other shareholders. This is the controlling the shareholder structure.
  • Drag Along: A prospective buyer will always want to purchase 100% of the shares, not 99.9%. With the drag-along, a certain majority of shareholders can "drag along", i.e. force, the minority shareholders to sell theirshares. If you have a large number of minority shareholders, it is important to consider the enforcement mechanism.
  • Tag Along: If the majority of shareholders sell their shares to a new buyer without triggering the Drag Along, the minority shareholders may not want to be minority shareholders with the new buyer. To protect the minority, the minority has the right to "tag along", i.e., sell their shares to the new buyer.
  • IP assignment: If shareholders are working for the company (e.g. as founders), it ensures that the IPcreated is assigned to the company.
  • Non-compete/non-solicitation: Since shareholders have extensive insight into the company, having a non-compete and non-solicitation clause protects the company's business, know-how and clients.
  • Confidentiality: It is important to keep the agreement and any information exchanged confidential. However, always have a carve-out that allows you to share the agreement for a financing round.
  • Amendments: A 100% approval requirement gives minority investors the power to block a subsequent financing round. In general, you can't impose new obligations on old shareholders; the main exception is the introduction of a liquidation preference in subsequent financing rounds.

Best practices

Shareholders' agreement: If there is more than one shareholder, there is a shareholder agreement that includes the following key clauses.

Key clauses: Your SHA includes at least the following clauses:

Tag Along clause

Drag Along clause

Right of First Refusal (ROFR) clause

Purchase options in case of trigger events (e.g., if a founder leaves the company)

Founders clauses: Additionally, and with regards to the founders, the following topics are addressed in the SHA (or intentionally omitted):

Vesting schedule for founders

IP assignment for all the work performed by the shareholders in relation to the company (if this is not covered by other agreements)

Non-compete for all founders (if this is not covered by other agreements)

Set up your first SHA with our flat-fee package.

Draft and negotiate your SHA during your Financing round with us. Take a look at our services and book a free call.









Updated 05 Nov 2024
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