Company contract and shareholders' agreement

If you form a company together, it is not enough to have the articles of association and the company registration in order. The articles are public and govern the relationship between the company and the outside world, but they rarely protect the co-owners sufficiently against each other. This is where the owners' agreement, also called the shareholders' agreement, comes in.

This guide explains what a company contract and an owners' agreement are, what it should contain, and why it is one of the most important documents you can have as co-owners.

What is an owners' agreement or shareholders' agreement?

An owners' agreement (also called a shareholders' agreement) is a private-law agreement between the shareholders in a company. It governs the relationship between the shareholders, and not the relationship between the company and the outside world.

The owners' agreement is not public. It is not registered with the Business Authority and does not appear in the company register. This allows the parties to agree terms they do not want to make public.

Be aware of an important limitation: under section 82 of the Companies Act, an owners' agreement is not binding on the company or on the decisions of the general meeting. The owners' agreement only binds the parties between themselves as a contract, and a breach can trigger a claim for damages between the parties, but it cannot be enforced directly against the company. Provisions in the owners' agreement that conflict with mandatory rules of the Companies Act are invalid.

When should you have an owners' agreement?

An owners' agreement is relevant whether you are two friends starting a startup or three companies forming a joint venture. The need is greatest when:

• The company has two or more owners with roughly equal ownership shares
• The ownership structure is complex (investors, employee shares, options)
• One or more owners work actively in the company, while others are passive investors
• You plan to raise external capital or bring in investors over time
• You want clarity about what happens if an owner wants out

Articles vs. owners' agreement: what is the difference?

	Articles of association	Owners' agreement
Publicity	Public, registered with the Business Authority	Private, visible only to the parties
Binding on	The company and all shareholders	Only the parties who have signed
Purpose	Govern the company's basic structure	Govern the relationship between the owners
Change	Requires a general-meeting decision	Requires the parties' consent
Flexibility	Limited by the Companies Act's requirements	High, with broad freedom of contract

A typical mistake is trying to put everything into the articles. That is neither necessary nor appropriate, because the owners' agreement is far more flexible and confidential.

What should an owners' agreement contain?

1. Ownership structure and capital

Describe the current ownership distribution: who owns what, and in which classes (A shares, B shares, employee shares etc.)? State the subscribed and paid-up share capital.

2. Board and management

Set out who has the right to appoint board members and directors:

• Does an owner with more than 50% have the right to appoint the majority?
• Do certain decisions require a qualified majority or unanimity?
• What are the day-to-day manager's powers and authorisation limits?

3. Decision-making and veto rights

State which decisions require more than a simple majority or unanimity at the general meeting. Typically, an increased majority or unanimity is required for:

• Raising new capital and diluting existing owners
• The sale of significant assets or the whole business
• Taking out loans above a certain limit
• Entering into agreements with related parties (shareholders, directors)
• Changing the company's business purpose

4. Dividend policy

Describe whether the company has an obligation to distribute a dividend, and if so to what extent. For example: "The company distributes at least X% of the year's profit as a dividend, unless the board decides otherwise with Y votes."

5. Right of pre-emption

If an owner wants to sell their shares, the other owners should typically have the right to buy them at the same price (a right of pre-emption). Describe:

• Who has the right of pre-emption?
• Within what deadline must the right be exercised?
• How is the price set if the parties do not agree?

6. Lock-up period

A lock-up clause prohibits one or all owners from selling their shares for a set period. It is especially relevant for founders in startups who receive capital from investors.

7. Drag along

Drag along gives a majority owner the right to force the other shareholders to sell on the same terms if a potential buyer wants to take over the whole company.

Example: A and B own 70% and 30% of the company respectively. A buyer wants to buy the whole company. With a drag-along clause, A can force B to sell their 30% at the same price per share.

Drag along is often decisive for making the company saleable.

8. Tag along

Tag along is the counterpart to drag along: if a majority owner sells, the minority has the right to sell along on the same terms.

Example: A sells 70% to a new investor at DKK 1,000 per share. With tag along, B can demand to sell their 30% at the same price.

Tag along protects minority owners against being left with an unwanted co-owner.

9. Good leaver and bad leaver

If an owner is also employed in the company (typically in startups), the owners' agreement should govern what happens to their ownership share if the employment ends.

Good leaver: The owner leaves the company on reasonable terms (voluntary resignation, illness or a natural agreement). A good leaver typically gets the market value of their shares.

Bad leaver: The owner is dismissed for gross breach or resigns without reasonable notice during a lock-up period. A bad leaver's share is typically redeemed at a lower price, for example cost.

10. Confidentiality and non-compete

The shareholders should commit to confidentiality about the company's business and to not running a competing business for an agreed period. A non-compete must be reasonable in time, geography and scope to be enforceable.

Owners' agreement and investors

If you bring in an external investor, a business angel, a venture fund or a strategic investor, the investor will almost always require a new or revised owners' agreement. Investors have typical standard requirements:

• Anti-dilution: Protection against dilution in future capital rounds at a lower price
• Liquidation preference: Investors are paid out their investment (and possibly a return multiple) before the other owners on an exit
• Information rights: Investors have the right to ongoing financial reports and budgets
• Veto rights: Investors can block certain decisions that change the company's basic structure

Negotiating an owners' agreement with a professional investor is a complex exercise and typically requires legal advice.

Frequently asked questions about owners' agreements and company contracts

Does an owners' agreement have to be registered?

No. An owners' agreement is a private-law contract and requires neither registration in a public register. It is binding on the parties who have signed, but not on new owners who have not acceded to the agreement.

What happens if a new owner does not accede to the owners' agreement?

A new owner is only bound by the owners' agreement if they expressly accede to it. The owners' agreement should therefore contain a requirement that new owners accede to the agreement as a condition for taking over the shares.

Can we have an owners' agreement in a company with only one owner?

A classic owners' agreement requires at least two parties. If, as a sole owner, you plan to bring in co-owners over time, you can, however, prepare a template for the owners' agreement now.

What is a vesting schedule?

A vesting schedule defines when a founder or employee obtains full ownership of their shares. Typically the shares vest over 4 years with a "cliff" of 1 year, so you vest no shares in the first year, but vest 25% on the one-year anniversary and the rest monthly thereafter.

Is the owners' agreement valid even if the company's articles differ?

The agreement is valid as a contract between the parties, but it cannot override mandatory rules of the Companies Act, and it is not binding on the company. If a conflict arises between the owners' agreement and the articles, it is the articles and the law that apply in relation to the company, while a breach of the owners' agreement can give a claim for damages between the parties. Therefore make sure the owners' agreement and the articles are harmonised.

Conclusion

An owners' agreement is not a document you make just in case something goes wrong. It is the foundation of clear, predictable and legally secure ownership. Drag along, tag along, the right of pre-emption and good- and bad-leaver clauses are not legal technicality for its own sake, but the answers to the questions that arise when a company grows, is sold or loses an owner. Start with a good template and adapt it to your situation, and involve a lawyer when the structure becomes complex or when investors come in.

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The content of this article is for guidance only and does not constitute legal advice. Consult a commercial lawyer for advice on your specific situation.