Conversation Intake Shareholders Agreement

Intake — Shareholders' Agreement

When this applies

Activate when a user requests drafting of a shareholders' agreement (SHA), investment agreement, subscription and shareholders' agreement (SSA), or any instrument governing the rights and obligations of shareholders inter se and vis-à-vis the company. This skill collects the seven structural fields before routing to [[draft-shareholders-agreement]]. An SHA drafted without a complete governance and exit structure is unusable and creates disputes at the most commercially sensitive moments.

Behavior

Multi-turn intake (typically two to three turns for VC-backed structures). The VC-specific items (item 7) are only needed if institutional investors are involved — do not ask about liquidation preference waterfall mechanics for a two-founder bootstrapped company.

Required fields

1. Company

• Full legal name of the company.
• Jurisdiction of incorporation and entity type:
  • Lebanon: SAL (Société Anonyme Libanaise, public joint-stock), SARL (limited liability)
  • UAE onshore: LLC (Limited Liability Company); JSC (Joint Stock Company for larger entities)
  • DIFC: Company Limited by Shares (Ltd); Foundation for holding
  • ADGM: Private Company Limited by Shares (Ltd); SPV structures
  • KSA: LLC (Sharikat Dhat Mas'ouliyya Mahdouda); JSC (Sharikat Mosahamah)
  • Delaware: C-Corp (standard for VC-backed; S-Corp for pass-through); BVI or Cayman for offshore holding
• Share capital: authorized, issued, and paid-up capital. Current cap table (who holds what, in what class).

2. Shareholders

For each shareholder:

• Full legal name and entity type (individual / corporate).
• Nationality (material for foreign ownership restrictions — KSA: MISA license limits; UAE: some sectors still restrict foreign majority ownership; LB: no general foreign ownership restriction but sector-specific rules apply).
• Number and class of shares held, percentage of total equity.
• Contribution type: cash (amount and currency), in-kind assets (description and agreed valuation), services/IP (founder contribution — note tax and accounting treatment in civil-law jurisdictions where services cannot be "contributed capital" as a formal matter).
• Whether any shareholder holds under a vesting schedule — if yes, confirm the cliff (12 months standard), vesting period (4 years standard), and acceleration triggers (single-trigger vs double-trigger on change of control).

3. Governance

This is the core of the SHA. Confirm:

Board composition:

• Number of directors.
• Appointment rights: which shareholder(s) may appoint how many directors? (Common: majority shareholder appoints X; investor appoints Y; independent director(s) agreed jointly.)
• Observer seats (non-voting): VCs often take observer rights alongside or instead of a board seat pre-Series A.
• Chair: who appoints the chair? Does the chair have a casting vote? (Casting-vote clauses are common in DIFC/UK structures; avoid in civil-law contexts where they may require specific authorization.)

Voting thresholds:

• Simple majority (>50%) for ordinary resolutions.
• Supermajority (66.7% or 75%) for material decisions.
• Unanimity for reserved matters.

Reserved matters list (matters requiring investor consent or shareholder supermajority — customize, but typical list includes):

• Change of business plan / scope.
• Issue of new shares or dilutive instruments.
• M&A, merger, or disposal of material assets.
• Change of CEO / key management.
• Capital expenditure above threshold X.
• Incurring debt above threshold Y.
• Related-party transactions.
• Dividend policy / distributions.
• Winding up.

4. Transfer restrictions

These protect the shareholder register from unwanted parties and preserve economic alignment:

• Right of First Refusal (ROFR): before a shareholder transfers shares to a third party, they must offer them to existing shareholders pro rata. Standard in virtually all SHAs.
• Right of First Offer (ROFO): transferring shareholder must offer shares to existing shareholders at a stated price before marketing to third parties. Less common than ROFR.
• Drag-along right: majority shareholder(s) above a threshold (typically 50–75%) can compel minority shareholders to sell their shares in an M&A transaction on the same terms. Protects acquirers from minority hold-outs.
• Tag-along right (co-sale right): if a majority shareholder sells, minority shareholders have the right to join the sale at the same price per share. Protects minorities from being left behind.
• Lock-up period: founders/key shareholders may not transfer shares for X years after signing (typically 1–3 years). Aligns founders with the company.
• Permitted transfers: transfers to wholly-owned subsidiaries or to family members (for estate planning) are typically permitted without triggering ROFR/ROFO. Confirm scope.
• Change of control in a corporate shareholder: if a shareholder is itself a company, confirm whether a change of control of that corporate shareholder triggers the ROFR — important for private equity structures.

5. Exit mechanics

• IPO trigger: what threshold of board / shareholder approval is required to initiate an IPO process?
• Drag-along threshold and floor price: what majority is needed to drag minorities? Is there a minimum return floor below which minority shareholders cannot be dragged (a "drag-along floor" or "minimum drag price")?
• Put and call options:
  • Put option (sell right): investor may compel the company or founders to buy their shares at a formula price in specified circumstances (investor protection on IRR floor).
  • Call option (buy right): founders or company may buy out investors at a formula price after a defined holding period.
• Deadlock resolution: what happens if the board is deadlocked on a reserved matter and cannot vote? Options: independent expert determination; shoot-out / Russian roulette (one party names a price; the other must buy or sell at that price); independent mediator; automatic dissolution (last resort).
• Drag-along timeline: how many days after a drag notice must closing occur?

6. Investor / preferred shareholder special rights

Applicable when there are institutional investors or preferred shareholders:

• Liquidation preference: preferred shareholders receive their investment (1x, 1.5x, or 2x non-participating) before any distribution to common shareholders on an exit or liquidation. Participating preferred: receive preference amount first, then also participate pro rata in remaining proceeds. Confirm multiplier and participation cap.
• Anti-dilution protection: if new shares are issued at a lower price (down round), how is the investor protected?
  • Full ratchet: most protective for investor — preferred converts at the new lower price.
  • Broad-based weighted average: most common in market practice — adjustment formula based on shares outstanding; fairly balances founder and investor interests.
  • Narrow-based weighted average: counts only shares in the same class; less favorable to investors than broad-based.
• Board seat: investor's contractual right to appoint a director (in addition to any statutory rights as a major shareholder).
• Information rights: investor's right to receive quarterly management accounts, annual audited financials, annual budget, and cap table within specified timeframes.
• Pro-rata rights (participation right): investor's right to participate in future financing rounds to maintain their percentage ownership.
• Most favored nation (MFN): investor gets terms at least as favorable as any future investor in the same round.

VC-specific note: Pre-money vs post-money valuation cap in the option pool. Confirm whether the employee option pool is sized pre-money (dilutes founders and investors pro rata) or post-money (dilutes only founders pre-investment). Post-money pool sizing has become standard following Y Combinator SAFE template adoption; confirm which standard applies.

7. Non-compete and confidentiality on shareholders

• Non-compete: founders or key shareholders agree not to engage in a competing business for X years after ceasing to hold shares. Duration and geographic scope: balance enforceability vs protectiveness.
  • Enforceability: UAE post-2021 labor law allows non-competes up to 2 years in same sector; KSA courts apply narrowly; UK courts apply "legitimate business interest" test; LB courts void unreasonably broad covenants.
• Non-solicitation: founders agree not to solicit the company's employees, clients, or suppliers for X years after ceasing to be shareholders.
• Confidentiality: shareholders' agreement provisions are typically confidential; each shareholder commits not to disclose the SHA terms. Exceptions: required disclosure to regulators, courts, professional advisors.

Output

At the end of intake, produce:

1. A structured intake summary confirming all seven fields, cap table overview, and outstanding items.
2. A flag for VC-specific provisions if an institutional investor is involved.
3. A routing instruction to [[draft-shareholders-agreement]] with the completed intake data.

Do not

• Draft a single-class equity SHA without asking whether investors or future investors need preferred shares — retrofitting preferred share mechanics into an already-signed SHA is costly.
• Apply Delaware-style preferred share mechanics directly to a Lebanese SAL or UAE LLC — civil-law entity types have mandatory governance rules (minimum board compositions, mandatory general assembly resolutions) that override contractual provisions. DIFC and ADGM are common-law and can accommodate more flexible structures.
• Omit the vesting schedule for founder shares — unvested founder shares in a multi-founder company is one of the top causes of early-stage disputes.

Related skills

• [[draft-shareholders-agreement]]
• [[conversation-intake-incorporation]]
• [[draft-founders-agreement]]
• [[draft-term-sheet]]
• [[kb-corporate-law-mena]]
• [[conversation-uncertainty-language]]