Shareholders' agreements

What are shareholders agreements and why might you need one?

A shareholders’ agreement is an agreement between the shareholders of a Company. Typically, there will be a comparatively small number of shareholders. This could be:

  • A number of shareholders with similar shareholdings
  • A situation where there are majority and minority shareholders and the minority shareholders wants their position to be protected (where as a matter of law the majority shareholders could make all the major decisions affecting the company)
  • A 50:50 company (this structure is sometimes used for joint ventures)
  • Someone invests in a company and has an agreement with the founders, so that they can protect their investment

Depending on the circumstances the agreement between the shareholders might be given a different name – subscription and shareholders’ agreement, investment agreement, minority protection agreement or joint venture agreement for a 50:50 enterprise between two companies.

The aim of such an agreement is to override or add to the general provisions of the Companies Act to make a specific agreement between the parties about how the company will be run. This is a private agreement between the shareholders separate from the company’s general constitutional document, the Articles of Association, which will be publicly available at Companies House. The aim is to give you the protection you need so that you have peace of mind in case there is a disagreement about the running of the company in future.

What would a Shareholders’ Agreement typically cover?

Depending your specific circumstances, particular needs or concerns can be addressed, but generally a shareholders’ agreement will cover the following issues:

  • How the company will be run – who will be directors and who will be chairman, how often board meetings will be held?
  • What rights are attached to the shares, for example, can a shareholder appoint a director to represent his or her interests?
  • Provisions preventing your shareholding from being diluted by more shares being issued – unless you agree to this
  • What % agreement of shareholders is needed for significant matters affecting the company (typically there is a list of matters requiring shareholder consent, sometimes called “Reserved Matters”)
  • For 50:50 companies, how will any deadlocks be resolved?
  • What happens if someone wants to transfer their shares: can they transfer to family members or do the other shareholders always have a right of first refusal?
  • Compulsory transfer events – so what happens if someone dies, becomes bankrupt, breaches the agreement or ceases to be employed (and does it matter if they leave on good terms as a “Good Leaver” or they are a “Bad Leaver” and will this affect the price they are paid for their shares?)
  • How the sale price on a transfer of shares will be agreed or if it is referred to an independent valuer on what basis should they value the shares?
  • What happens if the majority shareholders want to sell to a third party? Can they “drag along” a minority shareholder into the sale and, if they don’t, can the minority shareholder insist that he “tag along”, that is be included in a sale?
  • Who owns any intellectual property created and what restrictions should apply if someone leaves the company?

We have extensive experience of drafting and advising on agreements of this kind, so if you need to discuss whether you need such an agreement drafted or need us to review an existing agreement, please contact Kim Whitaker for an initial discussion on 020 7481 2422 or email

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