Shareholders’ Agreement: What It Is and Why You Need One

You’ve incorporated. The shares are split, the names are on the register, and everyone’s pulling in the same direction.

That’s the best time to agree what happens if that changes. A shareholders’ agreement sets out the ground rules for owning and running a business together.

What is a shareholders’ agreement?

A shareholders’ agreement is a private contract between some or all of a company’s shareholders, often with the company itself also signing. It sets out how you’ll work together as owners: how important decisions get made, what happens to shares when someone leaves, and how disagreements get resolved.

It isn’t normally filed at Companies House. It binds its parties, so new shareholders should formally join it, usually through a document called a deed of adherence.

For the basics of ownership and voting rights, read our guide Understanding Shareholders and Share Structure in a UK Limited Company

How is it different from your articles?

Your articles of association are your company’s constitutional rulebook. Every limited company must have them. Model articles apply by default where you haven’t registered your own, or to the extent your registered articles don’t exclude or modify them.

The main differences are:

• Requirement: articles are compulsory; a shareholders’ agreement is optional.

• Visibility: articles are publicly available at Companies House; a shareholders’ agreement is normally private.

• Who’s bound: articles bind the company and its members; an agreement binds its parties.

• Changes: articles can generally be amended by special resolution, requiring at least 75% approval under the applicable voting rules. Changes to an agreement follow its terms, commonly requiring all parties’ consent.

The two documents should work together. A shareholders’ agreement cannot override company law.

Do you need one?

If you’re the only shareholder, you generally don’t need one yet. With two or more shareholders, it’s worth putting one in place early.

Terms are easier to agree while everyone gets on than during a dispute. Our co-founders guide covers the wider questions about roles, commitments and splitting equity.

Why does it matter?

Standard model articles cover company administration, but don’t provide tailored answers to common founder problems:

• A co-founder leaves and keeps their shares. Leaving a job or directorship doesn’t automatically end ownership. Suitable leaver provisions can set out whether shares must be sold and how they’re valued.

• You hit deadlock. If you each hold 50% of the voting rights and disagree, important shareholder decisions can stall. An agreement can provide a process for resolving the dispute.

• You lose your board role. Shareholders can generally remove a director by ordinary resolution at a meeting, following the required procedure. Losing your directorship doesn’t automatically mean losing your shares.

• A shareholder dies. Their shares are dealt with through their estate. Agreed terms can provide a process for the remaining owners to buy them, including how the price is calculated.

Without an agreement, you rely on company law, your articles and any other arrangements already in place.

What’s typically included?

Most agreements address:

• Key decisions: which actions need unanimous consent or an agreed majority.

• Leavers: what happens to departing founders’ shares, including valuation.

• Share transfers: whether existing shareholders get first refusal.

• Selling the company: rights allowing shareholders to join a sale, or requiring them to sell when agreed conditions are met.

• Deadlock and disputes: steps such as negotiation, mediation or a structured buyout.

• Dividends: an approach to distributing or reinvesting profits, subject to distributable profits and share rights.

• Confidentiality and restrictions: appropriately drafted obligations during ownership and after departure.

• Funding: whether shareholders commit to providing further money, and on what terms.

When paying dividends, our board resolutions and templates guide explains the approval and paperwork.

How to get one in place

A template can help you work through the questions, but your agreement should reflect your company, ownership and plans.

FOUNDRS gives members two ways to get support:

• Draft with guidance: Genie AI helps you prepare an agreement. FOUNDRS members get a one-month free trial.

• Get legal support: Sprintlaw’s lawyers can draft or review your agreement. FOUNDRS members get 5% off their first project.

Agree the main commercial points together, then get the document checked against your articles before signing.