Shareholders Agreement
Governs the relationship between the founder (Class A) and future investors (Class B) following SAFE conversion at the seed round close.
This document is currently in preparation. The terms below represent the draft framework that will be negotiated with investors at the seed round. The final agreement will be executed simultaneously with the issuance of Class B shares upon SAFE conversion.
What is it?
A Shareholders Agreement is a contract between shareholders that governs the ownership and management of the company. It sets the rules for decision-making, share transfers, dispute resolution, and the rights and obligations of each share class — providing certainty for both the founder and investors.
Why it matters
- Prevents disputes and misunderstandings between shareholders
- Clearly defines shareholder rights and obligations
- Regulates share transfers and ownership changes
- Ensures smooth decision-making and governance
- Protects minority shareholders (Class B)
- Required by institutional investors before committing capital
The Shareholders Agreement governs the relationship between the Founder (Class A) and future investors (Class B) following conversion of SAFE instruments into equity at the first priced round.
At the pre-seed stage, with a sole shareholder, a Shareholders Agreement is not yet required. It will be executed simultaneously with the issuance of the first Class B shares — upon the close of the seed round or SAFE conversion.
This document represents the draft term sheet that will be subject to negotiation with investors.
The dual-class structure allows the founder to retain full operational and strategic control following investment, while investors receive complete economic participation — including dividends, liquidation proceeds, and exit proceeds.
The following decisions require investor consent (Class B written approval) or a qualified majority vote, regardless of the founder's unilateral authority:
- Issuing new shares or altering the share capital structure
- Amending the Articles of Association
- Entering into debt obligations exceeding £25,000
- Disposing of material company assets or intellectual property
- Approving annual budgets and material deviations therefrom (>20%)
- Appointing or removing directors
- Initiating a merger, acquisition, or exit process
- Declaring dividends outside the agreed distribution schedule
A 1× non-participating liquidation preference is the market standard for SEIS/EIS seed rounds in the UK. It protects investor capital in a downside scenario without penalising the founder in a strong exit — investors elect between receiving their preference amount or participating pro-rata alongside Class A shareholders.
Broad-based weighted average anti-dilution is the standard for UK seed and SEIS/EIS rounds. It protects investors against dilution in a down round without the punitive effect of full-ratchet provisions. The following issuances are excluded from anti-dilution adjustments:
- ESOP option pool issuances approved by the board
- Conversions of existing SAFE instruments
- New issuances approved in writing by Class B shareholders
Pre-emption rights: Before transferring shares to a third party, the selling shareholder must first offer those shares to existing shareholders at the same price and on the same terms.
- Class A transfers: require written consent of Class B shareholders by ordinary resolution
- Class B transfers: permitted only to entities approved by Class A
- Affiliate transfers: permitted without consent provided the transferee remains an affiliate
Drag-Along
If the founder, as holder of Class A shares, accepts a bona fide acquisition offer from a third party, Class B shareholders may be compelled to sell their shares on the same price and structural terms. This provision ensures that a single dissenting minority shareholder cannot block a full-company exit.
Tag-Along
If the founder sells Class A shares to a third party, Class B shareholders have the right to join the transaction and sell their shares on the same or better terms. This protects investors from being left behind in a partial exit or change of control.
- Dividends are paid proportionally to shareholding, after all liabilities are settled
- Dividend declaration requires a board resolution approved by Class A
- Pre-profitability policy: profits are reinvested — no dividends declared until sustainable profitability is achieved
- Liquidation waterfall: costs → Class B preference (1×) → pro-rata distribution to all shareholders
Class B shareholders are entitled to the following information rights for the duration of their shareholding:
- Quarterly KPI reports — revenue, ARR, active clients, burn rate, runway
- Annual financial statements
- Annual online investor meeting with the founder
- Notification of material events within 5 business days
Investor Perspective
The Shareholders Agreement is the document that directly governs investor rights post-investment. Clearly defined share classes, a 1× non-participating liquidation preference, investor information rights, and exit mechanisms — drag-along and tag-along — are the standard institutional investors and SEIS/EIS advisers expect before executing a SAFE. The AxiForge draft framework meets these requirements.