A shareholders agreement in Kenya is the contract that governs how the owners of a company deal with each other. It sits alongside the company’s articles of association and covers the questions that cause disputes: who can sell their shares, who decides the big things, and what happens when owners fall out. This guide explains what a shareholders agreement does, its key clauses, and why to put one in place early.
This guide is for founders going into business together, investors taking a stake in a company, joint-venture partners, and family businesses planning for the next generation. If you are choosing a vehicle rather than agreeing terms, see our guides to company registration and to partnership and LLP registration in Kenya.
Every Kenyan company has articles of association, the constitutional document registered under the Companies Act, 2015. The articles bind the company and its members, and they are on the public record. A shareholders agreement is different. It is a private contract between some or all of the shareholders, and often the company, dealing with how they will run and eventually exit the business.
The two documents do different jobs. The articles set the company’s constitution; the shareholders agreement sets the deal between the owners. Because the agreement is private, it can carry commercially sensitive terms, such as who has a veto or how the business will be valued on an exit, that the shareholders would not want on the public file. In our view most companies with more than one real owner should have both, drafted to work together.
| Feature | Articles of association | Shareholders agreement |
|---|---|---|
| Nature | Constitutional document of the company | Private contract between shareholders |
| Public? | Filed and on the public record | Private, not filed |
| Binds | The company and all its members | The shareholders who sign it |
| Typical content | Share capital, directors’ powers, meetings | Reserved matters, share transfers, exit, dividends |
| Changed by | Special resolution | Agreement of the parties |
A shareholders agreement earns its keep when things are going well and, more importantly, when they are not. It sets out how decisions are made, so a minority is not simply outvoted on the things that matter to it, and a majority is not held to ransom on the things that matter to it. It controls who can become a shareholder, so the others are not landed with an unwanted co-owner. And it plans the exit, so a departing shareholder, a deadlock or a sale is handled by a mechanism agreed in advance rather than fought over later. The cost of drafting one at the start is small against the cost of a dispute without one.
A well-drafted shareholders agreement usually covers:
The agreement and the articles must be read together, and where they could conflict the drafting should make clear which governs. The articles bind the company and are the document a third party sees; the agreement binds the shareholders who sign it and carries the commercial detail. In our view the two are best drafted as a pair, so a reserved matter in the agreement is reflected in the way the articles allocate power, rather than the two pulling in different directions.
Is a shareholders agreement compulsory? No. It is optional, but for any company with more than one real owner it is strongly advisable.
Is it filed anywhere? No. Unlike the articles, it is private and is not filed with the Registrar.
What is the difference from the articles? The articles are the company’s public constitution; the agreement is a private contract between the shareholders carrying the commercial deal.
When should we put one in place? At the outset, while the shareholders are aligned. Agreeing terms after a dispute has started is far harder.
Do we still need one if we have detailed articles? Usually yes, because the articles are public and cannot easily carry sensitive commercial terms, and because the agreement can bind the shareholders in ways the articles do not.
The most common mistake is not having an agreement at all, and relying on the statutory defaults and the articles, which say nothing about who buys a departing owner’s shares or how a deadlock is broken. Next is an agreement that contradicts the articles, so the two documents fight each other. Others copy a generic template that does not reflect the actual deal, or leave out the exit and valuation mechanism, which is exactly the part that matters when a shareholder wants out. And a minority shareholder who signs without securing reserved-matter protection can find its investment controlled entirely by the majority.
Our corporate and commercial team drafts and negotiates shareholders agreements, joint-venture agreements and the matching articles, for founders, investors and family businesses. We act for both majority and minority shareholders, and we align the agreement with the company’s constitution so the two work together. To put a shareholders agreement in place, contact John Maina, Partner, at OLM Law Advocates LLP.
This article is a general guide only and is not legal advice. Please seek advice on your specific circumstances.
OLM Law Advocates LLP advises founders, investors and family businesses on shareholders agreements, joint ventures and company governance.
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