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Business start-ups: Why you should have a SHA


As the UAE continues to attract entrepreneurs and foreign investment we expect to see a steep rise of start-ups in the near future.

Crucial to a start-up are well organized and documented internal governance documents. Thus, beyond the start-up ensuring that they are in compliance with all applicable laws and regulations, and have in place their Memorandum of Association (MoA) and Article of Association (AoA), they should also strongly consider entering into a Shareholders’ Agreement (SHA) at the time of incorporation.

What is a SHA?

The SHA is an agreement entered into amongst the shareholders which outlines how a company is to be operated, the rights and obligations afforded to the shareholders, and the relationship between the company and the shareholders. While the MoA and AoA set out the fundamental objectives, rights and responsibilities of directors and shareholders of the company, the SHA is solely focused on the shareholders’ rights, obligations and powers.

Why use one?

1. Private document
The SHA is a private agreement amongst the shareholders is not a matter of public record. .

2. Pre-empts contingencies
The SHA pre-empts certain circumstances and helps mitigate potential disputes or provides frameworks and solutions which may be utilised to efficiently deal with a dispute that may arise.

3. Ensures all shareholders are on the same page
It is important all parties to a new venture align their mutual goals and responsibilities. The SHA ensures that all shareholders are on the same page in this respect.

4. Protects Founders’ Interests
As the venture grows and expands, the management and ownership of the company may also change. Thus, the SHA can help founders in protecting their interests by structuring such changes and avoid possible conflicts and.

5. Protects shareholders’ interests
Ownership of shares is a crucial element of the SHA. Clauses on a future issue of shares, shareholding restrictions, share transfers, mandatory shareholders’ vote on certain matters, etc. ensure that the interests of both majority and minority shareholders are taken into account, and their rights and obligations are clearly laid down to give them effect.

6. Dispute resolution
The SHA typically also provides for a framework for dispute resolution that regulates how a dispute between shareholders (and the company) should be dealt with. It can serve to amicably resolve disputes between them, thus preventing a company entangling itself in an internal dispute.

Important clauses in an SHA

An ideal SHA would include the following important clauses:

1. Purpose and scope
Will serve to highlight the purpose of the SHA and defines its scope of application.

2. Operation and management
This clause lays down matters such as appointment and removal of directors, and appointment of other key managerial personnel such as Managing Director, Chairman and other Officers, by the shareholders and their voting rights in this regard.

3. Capital contribution
Under this clause, the parties stipulate the initial capital contribution that would be made by each shareholder, and contemplates the obligations of shareholders in case of additional capital contribution requirements in the future.

4. Profit, Cost and Debt Sharing
The SHA also lays down the profit distribution policy of the company, wherein the shareholders agree on how the finances of the company shall be distributed as regards costs, debts, expansion, assets and how net-profits are going to be shared amongst shareholders.

5. Transfer of Shares
This clause lays down the terms of the transfer of shares by the shareholders and sets out rights and obligations that the shareholders shall have to observe in order to effect any such transfer.

6. Reserved Matters

Reserved matters are specific matters, decisions or circumstances which the shareholders have determined as important enough to be dealt with exclusively by them (rather than by the directors of the company).

7. Pre-Emptive Rights
A pre-emptive rights clause gives existing shareholders the right to buy shares being issued by the company (before they are offered to the general public) and/or, being sold by other existing shareholders before they are permitted to transfer their shares to a third party.

8. Deadlock Resolution
A deadlock event is where the directors or shareholders are unable to come to an agreement over a decision. The deadlock clause provides the procedure to be followed to resolve the deadlock.

9. Dispute Resolution
The dispute resolution clause lays down the procedure to be followed to resolve any dispute that may ensue between parties to the SHA.


Whilst not legally mandated, it is recommended to utilise an SHA to provide clarity and certainty over the rights, liabilities and responsibilities of the shareholders, to reduce the risk of any potential disputes that could hamper the success and longevity of the company.

The SHA is very flexible in that it will normally contain important clauses (as noted above) but can also be tailored to fit the unique circumstances of each start-up to ensure it is fit for purpose and addresses the primary needs and concerns of the shareholders. Further, it serves as an appropriate instrument to address matters that are more intrinsic to the management of the company. 

It must be noted that an SHA cannot override the AoA, which is the governing and binding document of the company. Thus, while drafting an SHA, companies must ensure that the SHA is aligned with the AoA’s terms, so that there is no dispute over any conflicting terms in the two documents. 

Written by Bradley Moran, Jana Novakova and Ishwarya Singh. 

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