SHA 101: What a Shareholder Agreement Actually Does

Key takeaways: A shareholder agreement (SHA) is the contract that governs how co-founders make decisions, exit, and split control, separate from your articles of incorporation. Without one, disputes between co-founders default to whatever your corporate statute says, which is rarely what any founder actually wants. Get one signed before you take outside money, ideally before you need it.

Most founders think their articles of incorporation cover this. They don't. Articles set up your share classes and corporate structure. An SHA governs the relationship between the people who hold those shares, and that's a completely different document.

What an SHA actually covers

• Decision-making authority. Which decisions need unanimous consent (selling the company, taking on debt, issuing new shares) versus majority vote versus a single founder or the board acting alone.
• Share transfer restrictions. Rules preventing a co-founder from selling their shares to a stranger without the others getting a say, usually through a right of first refusal.
• Vesting. Whether founder shares vest over time (commonly four years with a one-year cliff), and what happens to unvested shares if someone leaves.
• Deadlock resolution. What happens if two 50/50 founders can't agree on something important. Without a mechanism written down, this can genuinely stall a company.
• Drag-along and tag-along rights. If a majority wants to sell the company, drag-along forces the minority to sell too, so one holdout can't block an acquisition. Tag-along protects a minority holder by letting them join a sale on the same terms.
• Non-compete and non-solicit terms for departing founders, separate from anything in an employment agreement.

Why "we'll figure it out if it comes up" doesn't work

Two founders who trust each other completely at incorporation are not always the same two people two years later, after a pivot, a funding round, or one founder doing more of the actual work than the other. An SHA isn't a sign of distrust. It's a plan for a disagreement neither of you can currently predict, written while you still like each other enough to agree on it calmly.

Investors will also ask for this before writing a cheque. A missing or outdated SHA is a common due-diligence flag that slows down a financing round right when speed matters most.

When to get one

Ideally at incorporation, or as soon as there's more than one shareholder. Retrofitting an SHA after a dispute has already started is a much harder negotiation, since the trust and goodwill that make these agreements easy to sign early are exactly what's strained once something's gone wrong.

Frequently asked questions

Do I need an SHA if I'm the only shareholder?

No, an SHA governs the relationship between multiple shareholders. A solo founder doesn't need one until a co-founder, investor, or employee receives shares.

Is an SHA the same as a unanimous shareholder agreement (USA)?

Related but distinct. A USA is a specific type of shareholder agreement under Canadian corporate statutes (like the CBCA or OBCA) that can restrict the board's powers entirely, transferring them to shareholders. Most early-stage SHAs are not full USAs, but the terminology gets used loosely, so confirm which one you're actually signing.

Can we amend an SHA later?

Yes, typically requiring unanimous or supermajority shareholder consent depending on what the agreement itself says about amendments. This is worth checking when you sign it, not just when you want to change it.

This article is general information about shareholder agreements and is not legal advice for your specific situation. Contact us to talk through your situation.