Shareholders' agreement: how to protect your ownership in a company

What is a shareholders' agreement?

A shareholders' agreement (ejeraftale, formerly called an aktionæroverenskomst) is a private agreement between the owners of a company. It governs the owners' relationship with each other, everything from decision processes to what happens if an owner wants to sell their shares or exit.

The shareholders' agreement is not mandatory, but it is in practice indispensable when a company has more than one owner.

When do you need a shareholders' agreement?

• You form a company with a co-owner or partner
• You take an investor into the company
• An existing owner wants to sell their shares
• You want to ensure that key decisions require agreement

Without a shareholders' agreement, the relationship is governed solely by the Companies Act and the articles of association, which is often insufficient in practice.

What must a shareholders' agreement contain?

Ownership and capital

• The distribution of ownership (percentage of shares)
• Rules for a capital increase and new owners
• Dividend policy, when and how much is distributed?

Decision processes

• Which decisions require a simple majority, a qualified majority or unanimity?
• Deadlock mechanisms, what happens if the owners disagree?
• The composition of management, who appoints the director and board?

Transfer of shares

• Pre-emption right, existing owners must have the opportunity to buy first
• Tag-along right, minority owners can sell along when the majority sells
• Drag-along obligation, the majority can require everyone to sell
• Lock-up period, the owners undertake to keep their shares for a period

Competition and confidentiality

• Non-compete clause, owners may not compete with the company
• Non-solicitation clause, owners may not contact the company's customers
• Confidentiality obligation, protects the company's secrets

Exit and termination

• Good leaver / bad leaver, at what price are a departing owner's shares bought?
• Termination on death, bankruptcy or breach
• Valuation method, how is the value of the shares determined?

Good leaver vs. bad leaver

An important mechanism in shareholders' agreements:

• Good leaver, the owner exits due to illness, retirement or by agreement. The shares are typically bought at market value
• Bad leaver, the owner is dismissed for breach, competes with the company or breaks the agreement. The shares are typically bought at a reduced price (for example net asset value or the acquisition cost)

The relationship with the articles of association

The shareholders' agreement and the articles of association overlap, but there are important differences:

• The articles of association are public (registered with the Danish Business Authority) and apply towards third parties
• The shareholders' agreement is private and applies only between the signatories
• In the event of a conflict, the articles apply towards third parties, while the shareholders' agreement applies as a contract between the parties

Note that under section 82 of the Companies Act, a shareholders' agreement is not binding on the company or on the decisions made at the general meeting. If an owner breaks the agreement, it is therefore a breach of contract between the owners (with the possibility of damages or agreed sanctions), but the general-meeting decision itself stands. It is therefore recommended to coordinate the two documents and to incorporate the most important matters into the articles of association where possible, so that they do not conflict.

Create your shareholders' agreement with LegalDock

With LegalDock you can create a professional shareholders' agreement that covers all the essential matters between the owners. Our template guides you through pre-emption rights, decision processes and exit terms.