Shareholders' agreement for two owners (50/50)

Two co-founders, 50% each, a good idea and plenty of enthusiasm. And no shareholders' agreement. That is the starting scenario for many Danish founder couples, and it is a problem that can prove costly for the business if the parties one day disagree.

A shareholders' agreement for two owners is especially important, because 50/50 ownership creates unique challenges: there is no natural majority, no one who can override the other, and on disagreement there is potential deadlock. This guide explains what your shareholders' agreement must address.

Note: Shareholders' agreements are complex documents that should be adapted to the specific situation. This guide is information, not legal advice. Consider legal assistance when drawing one up.

Why is the shareholders' agreement extra important with two owners?

With more than two owners, a majority can typically make decisions. With two owners and 50% each there is no majority, all decisions require agreement unless the agreement provides otherwise. This potentially creates:

• Deadlock: Both parties disagree and cannot make a decision
• Asymmetric contributions: One works more than the other but still owns 50%
• Exit problems: What happens if one wants to sell and the other does not?

A shareholders' agreement solves these problems in advance, while the parties still agree and are good friends.

What must the shareholders' agreement contain for two owners?

1. Distribution of ownership and capital contributions

Even though it is 50/50, the agreement should specify:

• Each owner's shares and their nominal value
• Capital contributions and their timing
• Any obligation to make further contributions

2. Decision structure

The shareholders' agreement should define which decisions require agreement (both), and which can be made by day-to-day management (the director):

Decisions that typically require agreement:

• Taking on new owners
• The sale of the business
• The distribution of dividend
• Significant investments over a set limit
• Hiring/dismissal of senior staff

Day-to-day management decides:

• Ongoing operational tasks
• Smaller contracts under an agreed limit
• HR decisions under a certain salary level

3. Deadlock mechanism

The most important element in a two-owner shareholders' agreement. What happens if the two owners completely disagree? Typical solutions:

Russian roulette (shotgun clause) One owner can offer to buy the other's interest at a set price. The other owner then has two choices: accept the sale or buy the first owner's interest at the same price. This ensures the price is set fairly, the one making the offer knows the other can turn it around.

Mediation The parties undertake to attempt mediation via an impartial mediator before escalating to court.

Appointment of a tiebreaker An impartial third person (for example a board member or adviser) can give the deciding vote on certain categories of decision.

External valuation An external auditor or lawyer sets a fair price if the parties cannot agree.

We recommend at least two of these mechanisms: mediation as the first step and Russian roulette as the second.

4. Vesting arrangement

Vesting means that the owners' interests are "earned" over time instead of being owned outright from day one. In a two-owner agreement, vesting is especially important, because it prevents the situation where a founder leaves the business early but keeps 50%.

A typical vesting model for founders:

• Cliff: No earning in the first 12 months. If you leave before then, you keep nothing
• Ongoing earning: Over the next 36 months, the shares are earned gradually (1/36 per month)
• Total period: 4 years in total

Example: Two co-founders with 50/50. Founder A leaves the business after 18 months. With this model (12-month cliff, then 1/36 per month), A has earned 6/36 of their shares (the first 12 months do not count, but then 6 months are earned = 6/36 = 16.7% of their own interest, corresponding to about 8.3% of the company). Note that there are other vesting models where a portion is earned already at the cliff. Vesting of shares also has company-law and tax consequences, so it should be set up correctly.

5. Transfer terms and pre-emption right

The agreement should govern:

Pre-emption right: Before an owner can sell to a third party, the other owner must be offered the shares at the same price and terms.

Drag-along obligation: If an owner sells to a third party, they can require the other owner to sell their shares along at the same price. This protects a buyer who wants to acquire the whole business.

Tag-along right: If an owner sells, the other has the right to sell along at the same price and terms. This protects the party who would otherwise be left with a new, unknown co-owner.

6. Non-compete

An important clause that states:

• That neither owner may compete with the business while the agreement runs
• A restraint period after exit (typically 12 to 24 months)
• Geographic and professional scope

A non-compete clause agreed between the owners as part of the shareholders' agreement is assessed under section 38 of the Contracts Act on reasonableness (not the Employment Clauses Act) and should be worded narrowly, as an overly broad clause can be set aside or moderated by the courts.

7. Confidentiality obligation

Both owners undertake not to disclose confidential information about the business, trade secrets, customer information, strategy, etc.

8. The exit scenarios

The shareholders' agreement should describe what happens if:

• An owner wants to sell voluntarily: Pre-emption right for the other owner
• An owner dies: What happens to the shares? Are they bought by the company or the other owner? Do they pass to the heir?
• An owner becomes long-term ill: When does an agreed takeover right take effect?
• An owner commits a serious breach: The right to demand an exit at a special (reduced) price

9. Salary and distribution

Even though ownership is 50/50, the contributions to the business can vary. The agreement should establish:

• Base salary for owners in operational roles
• Principles for dividend distribution (does it require agreement? Proportional?)
• What happens if one owner is not operationally involved?

Shareholders' agreement vs. articles of association

The articles of association are the business's public founding document. The shareholders' agreement is a private contract between the owners and is not public. This means:

• The shareholders' agreement binds the owners, not the business as such (cf. section 82 of the Companies Act)
• A general-meeting resolution made under the articles stands even if it conflicts with the shareholders' agreement; a breach of the shareholders' agreement is then a breach of contract between the owners
• The shareholders' agreement should be aligned with the articles, especially on voting rules and decision requirements

When should the shareholders' agreement be drawn up?

Answer: From day one. The best time to draw up a shareholders' agreement is before the parties disagree. It is easiest to agree exit conditions and deadlock solutions while both parties are motivated and in agreement.

Many wait too long and end up with a shareholders' agreement that has to be negotiated under pressure.

Create a shareholders' agreement with LegalDock

With LegalDock you can create a solid shareholders' agreement that covers the most important elements, including pre-emption right, deadlock mechanism and transfer terms. Adapt it to your situation and sign digitally.