Shareholders’ Agreements[1] are agreements  that describe and set out the mode of operation of  companies, the rights of respective shareholders and how they are to be exercised, the obligations, privileges and protection of minority shareholders amongst other relevant issues. In simple terms, a Shareholders’ Agreement is an agreement between shareholders. The utility of Shareholders Agreements depend on the content of the agreement and would vary according to the terms. Generally Shareholders’ Agreements deal with such issues as: setting out the shareholders’ rights and obligations; regulating the sale of shares by shareholders and pre-emptive rights; management of the company in terms of agreement to appoint or remove directors; protection of minority shareholders and other decisions.


In Nigeria, Shareholders’ Agreements are generally governed by the Law of Contract and the Companies and Allied Matters Act (CAMA) 2004. The CAMA regulates the scope of the Shareholders’ Agreement, while other matters are largely within the realm of contracts. The CAMA also makes provisions regulating the operations of companies in Nigeria and mandatory provisions of the Act cannot be varied under any shareholders agreement[2].  A well drafted shareholders agreement should therefore appreciate the provisions of the CAMA and the general Laws of Contract.



  • Confidentiality of Terms: The Memorandum and Articles of Association (MEMART) of a company and other documents which regulate shareholders relationship are easily available to the public. However, the terms of  Shareholders’ Agreements, are usually confidential between the parties. This makes Shareholders’ Agreements ideal for important business arrangements.


  • Less Formality:Shareholders’ Agreements are easier and cheaper to execute, amend or terminate. It also does not require the cumbersome process required for amendment of the MEMART.


  • Choice of Jurisdiction: Unlike under the MEMART, shareholders under  Shareholders’ Agreements may freely choose the jurisdiction for arbitration or litigation of disputes arising from the agreement.


  • Filling Lacuna in provisions of the Companies Laws:In instances where the relevant companies law either do not make provision for certain issues, or do not recognise them, such issues may be properly dealt with under a Shareholders’ Agreement.


  • Flexibility:Shareholders’ Agreements allow for flexibility and there is no recourse to notices, meetings or voting of members before terms can be altered between parties.


  • Minority Protection:Shareholders’ Agreements are a vital way of securing minority interests in a company.




  • Enforcement: Shareholders’ Agreements are enforceable only between the parties to the agreement. Hence the provisions of a Shareholders’ Agreement does not bind the company unless and until it is entered into by the Company or ratified as a binding contract on the company.



  • Inferior to Constitutional documents of the Company: The MEMART of a Company is superior contract of the company. Therefore, in the event of inconsistent between the Shareholders’ Agreement and the MEMART, the MEMART will prevail. This may however not prejudice the rights and obligations of respective parties under the agreement.



  • Inferior to the Statutory Provisions:As already highlighted, the provisions of a Shareholders’ Agreement cannot alter the mandatory provision of statute. Section 542 of the CAMA (1) provides that the provisions of the Act shall “have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed…” Thus for example any Shareholders’ Agreement which purports to take away the voting rights of minority members would be void by virtue of Section 542.



Various issues of shareholders interest can be included in a Shareholders’ Agreement. However, some important clauses to consider are:


Management of company and Directors’ obligation– These clauses specify the day-to-day management of the company and may deal with such issues as nomination, appointment, removal, remuneration of directors; decision on businesses to be engaged in; accounts management etc.


Share sale and transfer– These clauses regulate the holding of shares and the pre-requisites for transfer of shares.  Most shareholders agreement would include pre-emptive rights clauses or first refusal right clauses to prevent unwanted third parties from acquiring shares of the company and to regulate the sale of shares to outsiders. The agreement may also stipulate criteria for issuance of new shares. It may also contain a restriction on transfer or an option to purchase on death or other disability clause.


Capital and financial contributions– it includes clauses which set out what the initial contributions to be made by the shareholders is, and how future capital contributions or financing arrangements are to be made.


Minority Protection– These clauses provide some protection to minority shareholders.


Payment of Dividends– These Clauses would usually set the duration, and regulations for payment of dividends and profit sharing percentages.


Non-Compete– These clauses would prevent the shareholders from engaging in businesses that compete with business of the company. They protect the business and the interest of other shareholders in the business of the company.


Dispute resolution– These clauses govern dispute situations arising out of the shareholders agreements or shareholders relationship in the company. Matters as pre-action notices, arbitration, governing law etc. are covered under these clauses.


Allocation of key roles or responsibilities–This clause sets out the respective roles, liabilities, and duties of each shareholder where they also constitute the management team of the Company. It would usually stipulate the extra remuneration for the performance of the assigned role. e.g. a performance based bonus in addition to dividends as a shareholder.


Termination of Agreement: The Shareholders’ Agreement should contain a clause for its termination would stipulate the event or conditions for the termination of the agreement.



The utility of Shareholders’ Agreement, makes it an essential instrument for company management and securing of the interest of intending shareholders. In drafting the terms of the agreement, there is need to exercise care in other to ensure that the terms of the agreement not only comply with the rules of contract and the extant companies’ laws applicable to the business transaction, but to also ensure that the Shareholders’ Agreement is detailed enough to cover all essentials of the shareholders interest. Therefore, seeking professional legal expertise is recommended.


[1]Also referred to in some Countries as stockholders’ agreement.

[2]Section 542 of the CAMA (1) Except as otherwise expressly provided in this Act‐

(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed, by it, or in any resolution passed by the company in general meeting or by its board of directors whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and

(b) any provision contained in the memorandum or articles, agreement or resolution as in paragraph (a) of this subsection shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.



The above information is for educational purposes only and does not constitute professional advice by Blackwood & Stone LP.



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Blackwood & Stone LP

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