Creating Trouble And Calling For Problems? The Story of The Poorly Drafted Shareholders’ Agreement

For many entrepreneurs, founding a company and drafting a shareholders’ agreement are the first real encounters with the world of law. These steps shape how the business will operate, grow, and withstand challenges.

They are also tasks one can “do yourself and save money”. It’s much like installing a new dishwasher at home. It will probably work, but in Finland the insurance will not cover the damage if something goes wrong when choosing not to use a professional. Failing to use a legal specialist carries the same risk: not obligatory, but avoiding it diminishes your risk of significant problems later on.

This article brings together the best practices for drafting a shareholders’ agreement.

Using a Lawyer Is Your Company’s Best Risk-Management Strategy

A shareholders’ agreement is, in practice, essential for any Finnish company with more than one shareholder. It is the document that guides the company’s lifecycle. It must bind the shareholders, yet still allow for a fair and reasonable exit. In other words, it cannot be unreasonably restrictive, but it must protect the company at every stage.

Too often we encounter self-drafted agreements that look convincing on the surface but are internally inconsistent or unclear. They may use expressions that make it difficult (sometimes even impossible) to determine what the parties actually meant.

Legal terminology often uses everyday words that have entirely different meanings in a legal context. “Negligence”, for instance, is not a simple, binary concept in law, but a scale used for assessing varying degrees of fault.

A good shareholders’ agreement always covers at least:

• Roles and responsibilities of the shareholders.
• Decision-making and voting rights.
• Buy-out provisions and exit mechanisms.
• Profit distribution.
• Non-compete obligations and conditions of commitment.

How to build a functional shareholders’ agreement

At XO Legal, agreements are drafted individually for each client, taking into account the realities of their field of operation. In simple cases, the agreement may be only a few pages. In complex, high-value transactions, the documentation may extend to dozens or even hundreds of pages.

The essential starting point is to form a clear understanding of what the client wants the agreement to achieve. A shareholders’ agreement should always reflect the underlying aim: what is being protected, and against what risks? Should the document consider, for example, the risk of IPR leak, competition, divorce or is it actually inheritance tax planning that we’re doing?

Once the objective is clear, the lawyer builds a coherent, lawful structure around it.

Foreign owners and companies in Finland: key legal points to understand

XO Legal advises clients in both Finnish and English and helps ensure that their structures, agreements, and registrations meet Finnish requirements.

A useful rule of thumb in cross-border agreements is to record matters more comprehensively rather than too narrowly, so that contractual freedom is extensively exercised and, hence,  less room is left for international interpretation disputes.

This is important because the scope for contractual freedom in common-law systems is not equal to ours here. Finnish law gives a lot of weight to fairness, context, and reasonableness. Contractual freedom only functions when the parties state their intentions expressly.

When assisting foreign clients in establishing a company in Finland, we also explain:

• the supervision of fund transfers.
• taxation considerations (XO Legal does not provide tax consultancy).
• requirements for transparency in funding.
• main differences between legal systems.

Our proactive service model adds genuine security to a company’s everyday operations. Each and everyone uses a lawyer sooner or later. The most efficient approach is to let us help before a problem arises.