Why a Handshake Deal Is Not a Shareholders’ Agreement
Key points:
- Articles of Association alone rarely capture founder expectations on exits, roles and funding.
- Handshake equity deals collapse when money, control or death intervene.
- A shareholders’ agreement is cheaper than litigation after the friendship ends.
What Articles don’t fix
A Nation.Africa business blog arguing that “gentleman’s agreements ruin companies” restates a lesson Kenyan startups and family firms learn the hard way: without a Shareholders’ Agreement, a company is governed largely by its Articles of Association and the Companies Act—not by what co-founders said over coffee.
Articles cover basic share mechanics; they seldom lock down vesting, drag-along and tag-along rights, deadlock breaks, non-competes, or who funds the next round. When one partner stops working or a spouse inherits shares, informal understandings evaporate.
Write it while you still agree
Investors already insist on term sheets and SHA clauses. Founder-only companies skip them to “move fast,” then spend years in the Business Registration Service and the courts. The legal fees dwarf the cost of a proper agreement drafted early.
Culture sometimes treats written contracts as distrust. In corporate life, writing is respect: it protects both sides when memory and incentives diverge.
Directors who care about going concerns should treat a SHA as infrastructure—like a bank account—not as optional paperwork for when trouble starts.
Sources: Nation.Africa business blog on gentleman’s agreements.
