Five clauses every Sri Lankan shareholder agreement needs

When founders fall out, the first document anyone reaches for is the shareholder agreement — and too often it is either missing or silent on the question that matters. After two decades of shareholder litigation, the same five gaps appear again and again.

First, deadlock resolution. A 50/50 company with no deadlock mechanism is a dispute waiting for a trigger. A simple escalation clause — negotiation, then mediation, then a buy-sell mechanism — turns a company-threatening standoff into a process.

Second, leaver provisions. What happens to shares when a founder resigns, is dismissed, or simply stops contributing? Good and bad leaver clauses, with a pre-agreed valuation method, remove the single most emotive negotiation from the worst possible moment.

Third, reserved matters. Minority shareholders are protected not by percentages but by a list: the decisions that require their consent. Borrowing thresholds, new share issues, related-party contracts and changes to the business itself belong on it.

Fourth, transfer restrictions with teeth. Rights of first refusal, tag-along and drag-along provisions determine whether an exit is orderly or hostile. They need to be drafted against Sri Lanka's stamp-duty and exchange-control backdrop, not copied from a foreign template.

Fifth, a dispute-resolution clause chosen deliberately. Arbitration keeps matters private and fast; the Commercial High Court offers stronger interim relief. The right answer depends on the shareholders — but the wrong answer is silence.

None of these clauses is expensive to draft. All of them are expensive to litigate without.