Who needs this document
You need this agreement if you are a founder or early investor in a Kenyan startup. It governs founder vesting, equity allocation, decision-making rights, investor protections (anti-dilution, drag-along, tag-along), and exit mechanisms — protections that the Companies Act 2015 does not provide by default.
Frequently Asked Questions
Is a shareholders agreement required under Kenyan company law?
The Companies Act 2015 does not require a shareholders agreement — a company can operate under its Articles of Association alone. However, a shareholders agreement is strongly recommended for startups, as it governs matters not addressed in the Articles (e.g. founder vesting, anti-dilution, drag-along and tag-along rights).
What is a vesting schedule and why is it important for Kenyan startups?
A vesting schedule means founders earn their equity over time rather than receiving it all at once. A typical schedule is 4 years with a 1-year cliff: no shares vest for the first year, then 25% vests at the 1-year mark, and the rest monthly over 3 more years. This protects the company and remaining founders if a co-founder leaves early.
Is a startup shareholders agreement valid internationally?
Yes. Shareholders agreements using common law principles are recognised across the UK, US (for Kenyan law purposes in cross-border deals), Australia, and other jurisdictions. For international investors, specify the governing law. Kenyan companies with foreign shareholders should ensure the agreement complies with the Companies Act 2015.
What is the difference between ordinary and preference shares in a Kenyan startup?
Ordinary shares carry voting rights and share in residual profits. Preference shares typically have a liquidation preference (investors get paid back first if the company is sold or wound up), may have priority dividends, and sometimes carry anti-dilution protection. Most early-stage Kenya investors take preference shares to protect their downside.
What is a drag-along right and why do investors in Kenya require it?
A drag-along right allows a majority of shareholders to force minority shareholders to join a sale of the company on the same terms. Investors require it to prevent a minority founder from blocking a profitable exit. It protects the majority's ability to sell the company if they agree on a deal.
What is a pro-rata right in a startup shareholders agreement?
A pro-rata (or pre-emption) right gives existing investors the right to participate in future funding rounds proportional to their current ownership, preventing dilution. It is a standard investor protection in Kenyan startup funding rounds and should be clearly defined in the shareholders agreement.
Is a startup shareholders agreement valid in the UK?
LegalEase startup shareholders agreements use common law principles recognised in England and Wales. For UK-incorporated startups, the Companies Act 2006 governs share issuance, and SEIS/EIS relief may affect how shares are structured. For UK companies raising investment, consult a UK solicitor to ensure compliance with Companies House requirements.