A shareholders' agreement is the private contract that governs how founders and investors behave toward each other. Uganda and Kenya's Companies Acts set out the default rules — but the defaults are thin, and almost every serious business needs bespoke terms. This is the document a good lawyer earns their fee on.
The best time to sign a shareholders' agreement is when everyone is friends. The worst time is when you already disagree. What follows are the clauses we insist every founding team consider before the first external wire lands.
Why the Articles are not enough
The Articles of Association are a public document filed with URSB or the Kenyan Registrar of Companies and are governed by the Companies Act's default provisions. They cover the mechanics of share issuance, board meetings and shareholder resolutions, but they do not — and should not — contain the commercial deal between founders. The shareholders' agreement is private, contractually binding between the parties who sign it, and can go into detail that would be inappropriate in a public document.
Vesting and reverse vesting
Founders' shares should vest over time — typically four years with a one-year cliff. If a co-founder leaves in year one, they walk away with nothing; after year one, 25% vests, then monthly thereafter. Reverse vesting achieves the same outcome by issuing all shares upfront but subjecting unvested shares to a company right of repurchase at nominal value. Without vesting, an early departure leaves a dead-weight shareholder on the cap table forever — an outcome that will haunt the company at every future funding round.
Good leaver / bad leaver
Pair vesting with a good-leaver / bad-leaver framework. A good leaver (death, long-term illness, no-fault termination) keeps their vested shares and may have unvested shares repurchased at fair value. A bad leaver (resignation without cause, termination for misconduct, breach of restrictive covenants) may have all shares — vested and unvested — repurchased at nominal value or the lower of cost and fair value. The definitions are the entire negotiation; draft them carefully.
Pre-emption rights
Existing shareholders should have the right of first refusal on any new shares issued by the company and on any shares an existing holder wants to sell. Pre-emption prevents unwanted dilution and stops shares drifting to third parties the other shareholders do not know. It also gives the cap table stability during fundraising: an existing investor's decision not to exercise pre-emption is a meaningful signal, and one that new investors read.
Tag-along and drag-along
Tag-along protects minority holders: if a majority holder sells, minorities can 'tag' onto the same deal at the same price. Drag-along protects the majority: if a qualifying offer for 100% of the company arrives, minorities can be 'dragged' into selling on the same terms. Together they make exits clean. Get the qualifying-offer threshold right: too low, and a small majority can force a bad exit; too high, and a single small holder can block a good one.
Board composition and reserved matters
Define who appoints directors, how the chair is chosen, and quorum rules. Then list the 'reserved matters' — decisions that require unanimous or supermajority approval regardless of ordinary board voting. Typical reserved matters: issuing new shares, taking on debt above a threshold, hiring or firing the CEO, changing the business model, selling the company, related-party transactions, changing the accounting policies, and any transaction outside the ordinary course of business above a defined value. Reserved matters are how minority investors get real protection without operational control.
Founder commitments and non-compete
Founders should commit to work full-time on the business, assign all relevant IP to the company, and accept reasonable non-compete and non-solicit restrictions during and after their tenure. Post-termination non-competes must be reasonable in scope, geography and duration to be enforceable under Ugandan and Kenyan common law — 12 to 24 months, limited to genuinely competitive activity, is the typical band. These clauses are what investors read first.
Anti-dilution
Investors will often ask for anti-dilution protection: if the company later issues shares at a lower price than they paid, their shareholding is adjusted to compensate. Weighted-average is the market norm; full-ratchet is aggressive and rarely justified. Founders should push back on full-ratchet in almost every case — it can wipe out founder equity in a down round and destroy the incentives that keep the team building.
Deadlock resolution
In a 50/50 company, deadlock is inevitable. Build in an escalation path: negotiation between principals, then mediation, then a Russian roulette or Texas shoot-out mechanism as a last resort. It sounds dramatic; it saves companies. The critical design choice is whether the deadlock mechanism can be triggered unilaterally — a hair-trigger causes strategic use, an unusable one may as well not exist.
Dispute resolution
Specify arbitration — typically in Kampala, Nairobi, or a neutral seat like Mauritius or London under LCIA or ICC rules — rather than defaulting to litigation. Arbitration is faster, cheaper, confidential, and produces awards that are enforceable across borders under the New York Convention. Both Uganda and Kenya are signatories, and both have functioning arbitration courts. Pick the seat and the rules deliberately; a badly drafted arbitration clause is worse than none.
Confidentiality and information rights
Every shareholder owes the company confidentiality. In return, shareholders above a certain threshold receive information rights — quarterly management accounts, annual audited financials, board pack access. Calibrate the threshold so you are not sending sensitive information to a shareholder with 0.5%. Investors of size will also want inspection rights (audit access), a board seat or observer, and pro-rata rights in future rounds.
Founder salaries and dividends
Small point, big fights. Agree in the shareholders' agreement whether founders draw salaries and how those are benchmarked, and set a dividend policy (typically: no dividends until agreed reinvestment targets are met). This heads off the recurring argument between founders taking market-rate salaries and passive investors who feel they are being paid before the investors see any return.
Get it done before you need it
None of these clauses are exotic. They are the standard vocabulary of investable companies across the continent. A well-drafted shareholders' agreement costs a fraction of what it saves — and signals to the next investor that the founders know what they are doing. If you are already 18 months in without one, retrofit now; every additional month of trading makes the negotiation harder.
