Stealth Governance: Shareholder Agreements and Private Ordering

54 Pages Posted: 18 Aug 2020 Last revised: 21 Feb 2023

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Carey Law School; European Corporate Governance Institute (ECGI)

Date Written: 2022


Corporate law has embraced private ordering -- tailoring a firm’s corporate governance to meet its individual needs. Firms are increasingly adopting firm-specific governance through dual-class voting structures, forum selection provisions and tailored limitations on the duty of loyalty. Courts have accepted these provisions as consistent with the contractual theory of the firm, and statutes, in many cases, explicitly endorse their use. Commentators too support private ordering for its capacity to facilitate innovation and enhance efficiency.

Private ordering typically occurs through firm-specific charter and bylaw provisions. VC-funded startups, however, frequently use an alternative tool – shareholder agreements. These agreements, which have largely escaped both judicial and academic scrutiny, highlight the extent to which rights and responsibilities in the corporation should be the subject of private contract.

This Article offers the first broad-based analysis of shareholder agreements, detailing the scope of issues to which they are addressed and identifying the challenges that they pose for corporate governance. Focusing on the use of shareholder agreements by VC-funded startups, the Article recognizes the broad role played by shareholder agreements in structuring and coordinating investors’ economic rights, but it argues that using shareholder agreements for corporate governance, what this Article terms “stealth governance,” sacrifices critical corporate law values. These concerns are particularly problematic for the growing number of unicorns that have substantial economic impact but whose governance structures are shielded from the transparency and price discipline of the public capital markets.

This Article argues that stealth governance is inappropriate for corporations and instead advocates a uniform structural approach to corporate law that would limit private ordering to the charter and bylaws. It further critiques the use of shareholder agreements to evade statutory limits on charter and bylaw provisions, arguing that, to the extent existing limits are undesirable, they should be the subject of legislative reform.

A prior draft of this Article was posted with the working title of “Private Ordering and the Role of Shareholder Agreements.”

Keywords: Corporations, private ordering, corporate governance, shareholder agreements, mandatory corporate law, contractual corporate law, theory of the firm, start-up governance, venture capital

JEL Classification: G34, K12, K22

Suggested Citation

Fisch, Jill E., Stealth Governance: Shareholder Agreements and Private Ordering ( 2022). Washington University Law Review, Vol. 99, p. 913, 2022, U of Penn, Inst for Law & Econ Research Paper No. 20-48, European Corporate Governance Institute - Law Working Paper No. 538/2020, Available at SSRN: or

Jill E. Fisch (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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