INTRODUCTION
In also a decade of corporate commercial practice, I have observed one pattern with remarkable consistency: Nigerian businesses tend to run into their most destructive legal problems not because they broke any law, but because they never agreed, in writing and with legal precision, on what would happen when things changed. A founding partner leaves. A new investor comes in. The company hits a windfall. A deadlock emerges at the board. Each of these events is entirely foreseeable — and yet, the majority of Nigerian SMEs and even mid-market companies face them without a shareholders’ agreement in place.
This article explains what a shareholders’ agreement is, why it matters under Nigerian law — particularly under the Companies and Allied Matters Act 2020 — what it must contain, and why it must be executed before any deal is signed, not after.
I. What Is a Shareholders’ Agreement?
A shareholders’ agreement is a private contractual arrangement between the shareholders of a company — and typically the company itself — that governs the relationship between them in relation to the company’s management, ownership, and future. It operates alongside the company’s Memorandum and Articles of Association but, critically, is not a public document filed with the Corporate Affairs Commission (CAC). Its contents remain private to its signatories.[1]
Under Nigerian law, every incorporated company is governed in the first instance by CAMA 2020 and its own constitutional documents. A shareholders’ agreement does not displace this statutory framework rather it supplements and particularises it. It is the document that answers questions CAMA does not: Who runs the business day-to-day? What decisions require unanimous consent? What happens when a founder wants to exit? What is the agreed process for bringing in a new investor?[2]
A shareholders’ agreement is the difference between a business relationship governed by trust alone and one governed by enforceable law. Trust erodes. Contracts do not.
II. The CAMA 2020 Landscape: Why Statutory Provisions Alone Are Not Enough
CAMA 2020 introduced several important reforms that affect shareholders directly. It allows private companies to be incorporated with a single shareholder[3] and codifies pre-emptive rights for existing shareholders of private companies: before a company allots new shares to outsiders, it must first offer those shares to existing shareholders in proportion to their current holdings.[4]
CAMA 2020 also introduced optional restrictions on share transfers for private companies, meaning that while shares of private companies retain a degree of protection from unfettered transfer to third parties, the precise mechanisms for that protection depend on what the Articles of Association and any shareholders’ agreement provide.[5]
The statute, however, is a framework, not a bespoke governance document. It cannot anticipate the specific commercial dynamics, power arrangements, and risk allocations that are unique to every company. That is precisely the function of a well-drafted shareholders’ agreement.
III. Seven Provisions Every Nigerian Shareholders’ Agreement Must Address
Based on my experience advising businesses across sectors — from FinTech operators and real estate developers to manufacturing SMEs — there are seven non-negotiable provisions every shareholders’ agreement for a Nigerian company should contain:
1. Ownership Structure and Share Classes
The agreement must clearly state who owns what percentage of the company, what classes of shares exist (ordinary, preference, or otherwise), what rights attach to each class, and how those rights rank in priority — particularly on dividends and liquidation.[6] This is especially critical where the company has multiple investors with different return expectations.
2. Reserved Matters and Decision-Making
Not all decisions should rest with the board alone. A shareholders’ agreement typically carves out a list of ‘reserved matters’ — major decisions that require shareholder approval above and beyond what CAMA requires.[7] These commonly include taking on debt above a specified threshold, making acquisitions, changing the nature of the business, or approving related-party transactions.
3. Pre-emption Rights on Share Transfers
CAMA 2020 gives existing shareholders pre-emptive rights on new share issuances.[8] A shareholders’ agreement should go further — creating pre-emption rights on transfers between existing shareholders: if any shareholder wishes to sell their shares, existing shareholders must have the first right of refusal before those shares can be offered to outsiders. This protects the composition and culture of the shareholder group.
4. Tag-Along and Drag-Along Rights
A tag-along right allows minority shareholders to join a majority shareholder’s sale on the same terms — ensuring they are not left stranded with an unwanted new co-owner. A drag-along right allows majority shareholders to compel minority shareholders to participate in a sale, enabling a clean exit transaction where a buyer wants to acquire the entire company.[9] Without these provisions, exit transactions are routinely frustrated by the legal complexity of dealing with unwilling or uncooperative minority shareholders.
5. Deadlock Resolution
One of the most underestimated risks in any private company is deadlock — a situation where shareholders with equal or competing authority cannot agree on a material decision and the company is paralysed as a result. A well-drafted shareholders’ agreement will define what constitutes a deadlock, specify an escalation process, and provide a resolution mechanism such as a Russian roulette clause, a put or call option, or a forced sale process.[10] Without such a clause, the only remedy may be winding up the company.
6. Dispute Resolution
The Arbitration and Mediation Act 2023 (AMA 2023) — which replaced Nigeria’s former arbitration statute — has significantly modernised and strengthened the enforceability of arbitration clauses in commercial agreements.[11] Every shareholders’ agreement should contain a clear dispute resolution clause specifying whether disputes go to arbitration, mediation, or litigation; which arbitration rules apply; the seat and venue; and the governing law. For most private Nigerian companies, arbitration is preferable — it is confidential, faster, and avoids the public exposure of litigation.
7. Dividend Policy and Financial Obligations
CAMA 2020 permits companies to pay dividends where authorised by their articles.[12] But it says nothing about when, how frequently, or in what proportions dividends should be declared. A shareholders’ agreement that is silent on dividend policy is an invitation to shareholder conflict — particularly where founders expect periodic returns but investors prefer reinvestment.
IV. The Agreement and the Articles: Understanding the Relationship
A common misconception is that the Articles of Association are sufficient. They are not. Articles are public documents filed with the CAC, govern the company’s internal management, and are subject to alteration by special resolution.[13] A shareholders’ agreement, by contrast, is a private contract. Its terms cannot be unilaterally altered. It binds all signatories personally — not merely in their capacity as shareholders of a company — and creates contractual obligations enforceable independently of any corporate resolution.
The better approach is to use both: have a well-drafted set of Articles that conform to CAMA 2020, and have a shareholders’ agreement that fills the governance gaps the Articles leave open. Where there is any conflict between the two, the agreement should expressly specify which prevails — a point that requires careful legal drafting.[14]
V. Enforceability and Third Parties
Under Nigerian law, shareholders’ agreements are binding contracts and are generally enforceable between the parties. CAMA 2020’s recognition of a company’s separate legal personality[15] does not diminish the enforceability of the agreement inter se between its shareholders. Furthermore, a well-structured agreement will make it a condition of any share transfer that the incoming purchaser executes a deed of adherence, binding them to the terms of the agreement as if they were an original party.[16]
This mechanism — the deed of adherence — is essential. Without it, a new shareholder who acquires shares without being party to the agreement is not bound by it, and the entire governance framework built by the original parties is potentially undermined.
The time to negotiate a shareholders’ agreement is before the first investment, before the first deal, and before any dispute arises. After any of those events, the negotiating dynamics change permanently.
VI. When Should You Execute a Shareholders’ Agreement?
The answer is categorical: before the first deal. More specifically:
- Before any investor puts money into the company
- Before a co-founder relationship is formalised
- Before any acquisition, merger, or joint venture is consummated
- Before any employee equity programme is launched
- Before the company takes on material debt requiring shareholder guarantees
Once a commercial transaction has been executed without a shareholders’ agreement in place, the parties’ expectations are already diverging. The negotiation of the agreement becomes a fight over competing entitlements rather than a forward-looking exercise in governance design. That fight is expensive, time-consuming, and frequently produces a weaker document than one negotiated from a position of mutual good faith.
Conclusion: The Cheapest Insurance a Nigerian Business Can Buy
A shareholders’ agreement is not a luxury document for large corporations. It is the foundational governance instrument of any serious Nigerian business with more than one stakeholder. Given the pace of commercial activity in Nigeria — FinTech, real estate, infrastructure, energy, manufacturing — and the sophistication of the investors now participating in this market, the expectation of a robust shareholders’ agreement is no longer optional.
At Enebeli & Partners Legal, we advise clients across every sector on the drafting, negotiation, and enforcement of shareholders’ agreements tailored to their specific commercial context and regulatory environment. We do not use template documents. Every agreement we produce is a bespoke governance instrument built around the actual dynamics of the business and the realistic scenarios it will face.
If your company has more than one shareholder and no shareholders’ agreement, that is not a business problem — it is a legal emergency. Let us help you fix it before the first deal closes.
To retain Enebeli & Partners Legal for corporate advisory services, contact us at info@goenebeli.com or call +234 802 255 7029.
[1]Companies and Allied Matters Act 2020 (Act No. 3 of 2020) (hereinafter ‘CAMA 2020’), s. 42. Signed into law on 7 August 2020 by President Muhammadu Buhari.
[2]The general meeting and board of directors share powers of management; a shareholders’ agreement supplements but does not replace the statutory framework.
[3]CAMA 2020, s. 22(3): a private company shall not have more than fifty (50) members.
[4]CAMA 2020, s. 142(1): where a company proposes to allot new shares, it must first offer those shares to existing shareholders in proportion to their shareholding. See also: Femi Matthew, ‘Pre-emptive Rights and Zeal for Shareholder Protection under CAMA 2020’ (2022) LinkedIn Pulse.
[5]CAMA 2020, ss. 22(2)(a) and 142(1). Under the old CAMA 1990, private companies were mandated to restrict share transfers via their articles; CAMA 2020 has now codified pre-emptive rights as a default protection for existing shareholders while making transfer restrictions optional for private companies.
[6]IBA Guide on Shareholders’ Agreements — Nigeria (International Bar Association, 2022): ‘Shareholders’ agreements are widely utilised in Nigeria. They are frequently used in private companies with a joint venture structure, companies that have received private equity investment or companies that have been involved in any other form of investment or acquisition that requires the allocation of board control and management decisions between the shareholders.’ See also s. 8(1) of CAMA 2020 on the general powers of the Corporate Affairs Commission to regulate corporate conduct.
[7]Shareholders may by ordinary or special resolution determine matters reserved for shareholder approval. A shareholders’ agreement supplements this by creating contractual reserved matters beyond the statutory minimum.
[8]CAMA 2020, s. 142(1), as amended by the Business Facilitation (Miscellaneous Provisions) Act 2022 (BFA). The BFA clarified that pre-emptive rights apply to every new share issuance. See also multilaw.com, ‘Nigeria — Private Company Limited by Shares’: ‘every new issuance of shares by a private company must be first offered in proportion to the current shareholding of the existing shareholders before they are offered to a third-party purchaser (CAMA, s. 142 as amended by the BFA).’
[9]IBA Guide on Shareholders’ Agreements — Nigeria (n 6): ‘tag-along or drag-along’ rights may be prescribed by shareholders’ agreements ‘specif[ying] specific processes for transferring shares, requisite approvals, the number of shares permitted to be transferred, to whom it can be transferred and the mechanics of tag-along or drag-along.’
[10]On deadlock mechanisms generally, see: McMillan LLP, ‘Breaking the Deadlock: How Shareholders’ Agreements and Shotgun Clauses Help Resolve Disputes’ (2025). In the Nigerian context, the Arbitration and Mediation Act 2023 (AMA 2023) now governs commercial arbitration, making arbitration clauses in shareholders’ agreements more enforceable and streamlined than under the old Arbitration and Conciliation Act 1988.
[11]Arbitration and Mediation Act 2023 (AMA 2023), s. 1; the AMA 2023 repealed the Arbitration and Conciliation Act Cap A18 LFN 2004 and modernised Nigeria’s arbitration framework in alignment with the UNCITRAL Model Law. Parties to a shareholders’ agreement may now validly agree to resolve disputes by arbitration, mediation, or a combination of both.
[12]CAMA 2020, s. 139: a company may, if authorised by its articles, pay dividends on its shares. The timing, frequency, and proportion of dividend payments are typically the subject of express agreement among shareholders, particularly where the company has multiple share classes or where investors require dividend preferences.
[13]CAMA 2020, s. 305: directors owe fiduciary duties to the company. A shareholders’ agreement may supplement these duties with additional covenants including non-compete, non-solicitation, and confidentiality obligations enforceable between the shareholders themselves as contracting parties.
[14]CAMA 2020, s. 42: upon incorporation, a company becomes a body corporate with a separate legal personality from its members. The agreement cannot override this statutory position but supplements it at the contractual level, binding the parties inter se even where the company is not a party.
[16]IBA Guide on Shareholders’ Agreements — Nigeria (n 6): ‘Shareholders’ agreements can be enforced against third parties such as purchasers of shares or successors of parties to the agreement. Shareholders’ agreements typically make it a condition of sale of shares that the purchaser must have expressly confirmed that it would [be bound by the agreement].’
