What it can establish
It can establish how important decisions will be made, what happens if shareholders reach a deadlock, how shares can be transferred and what happens when a shareholder leaves the business.
Shareholders’ agreements
Shareholders' Agreement Legal Advice for UK Businesses
A shareholders' agreement sets out what the owners of a company have agreed about control, decision-making, shares and what happens when circumstances change.
- Fixed fees agreed first
- Direct access to the lawyer
- Non-reserved legal services
01 / Why it matters
The questions that are easy to avoid while everyone is getting along
Those questions are often easy to avoid when everyone is getting along. They become much harder when a co-founder wants to leave, a new investor is coming in, shareholders disagree about an important decision, or one owner wants to sell their shares.
We draft and review shareholders' agreements for owner-managed businesses, founders, family companies and businesses bringing in new investors. The agreement is tailored to the way your company actually operates rather than relying on a generic template.
Fixed fee agreed before work starts
Qualified lawyer
Legal and tax coordination available
02 / The agreement
Shareholders' agreements that deal with the difficult questions early
A shareholders' agreement is most useful when the shareholders can still agree.
Built around your company
The right provisions depend on the company's ownership structure, the relationship between the shareholders and what the business is trying to achieve. A two-founder company may need a very different agreement from a family business bringing in the next generation or a company receiving external investment.
Our role is to understand those circumstances and build the agreement around them.
Working with Adroit Accountax
Where share rights, transfers or an exit also have tax implications, we can coordinate with Adroit Accountax so those considerations are addressed alongside the legal work.
What we advise on
A shareholders' agreement can cover a wide range of issues, including:
- Shareholder control and decision-making
- Reserved matters and shareholder consent
- Deadlock between shareholders
- Share transfers and pre-emption rights
- Drag-along and tag-along provisions
- Founder exits and leaver provisions
- Good leaver and bad leaver arrangements
- Share vesting
- Dividend policies
- Minority shareholder protections
- Bringing new investors into the company
- Restrictions on transferring shares
- Confidentiality and related shareholder obligations
- Aligning the agreement with the company's articles of association
03 / Do you need one
Do you need a shareholders' agreement?
There is no general legal requirement for a company to have a shareholders' agreement simply because it has more than one shareholder.
Articles are not the same thing
A limited company must have articles of association, which provide the rules for how the company is run. A shareholders' agreement is different: it is a private agreement between the relevant parties that can deal specifically with their relationship as shareholders and the arrangements they have agreed between themselves.
Worth considering early
For a company with multiple owners, however, it is worth considering what happens if circumstances change.
These are not questions that should ideally be answered for the first time when a disagreement has already started.
For example:
- What happens if two shareholders cannot agree on an important decision?
- Can a shareholder sell their shares to someone outside the existing ownership group?
- Do the other shareholders have the opportunity to buy those shares first?
- What happens if a founder leaves the business?
- What happens if one shareholder wants to sell and the others do not?
- Can a majority shareholder require minority shareholders to participate in a sale?
- What decisions require shareholder approval rather than ordinary management authority?
- What happens if a shareholder dies or becomes unable to continue?
04 / The documents
Shareholders' agreement vs articles of association
The two documents work differently and should be considered together.
Articles of association
are the company's constitutional rules. Every limited company must have articles, and model articles can apply by default where appropriate.
A shareholders' agreement
is a separate contractual arrangement between the parties who enter into it. It can set out additional arrangements between shareholders, including matters such as decision-making, share transfers, investor protections and what happens when a shareholder exits.
The important point is not simply having both documents. They should work together.
We can review the existing articles alongside the shareholders' agreement and identify provisions that need to be aligned.
05 / Disagreement
What happens if shareholders disagree?
Without an agreed mechanism
The problem is that without an agreed mechanism for dealing with a deadlock, the shareholders may have very different views about what should happen next.
A properly considered shareholders' agreement can establish a process for dealing with certain disagreements before they become a wider commercial dispute.
The right mechanism depends on the ownership structure and the nature of the business. There is no single deadlock provision that is appropriate for every company.
Depending on the circumstances, this may involve:
- Defining decisions that require specific shareholder approval
- Establishing reserved matters
- Setting out a deadlock procedure
- Providing escalation or negotiation steps
- Establishing mechanisms for a shareholder exit
- Setting rules for the transfer of shares
- Providing appropriate protections for minority shareholders
06 / Ownership
Share transfers, exits and changes in ownership
Ownership can change for many reasons.
Rules for transferring shares
A shareholder may decide to leave, an investor may want to sell, a founder may retire, or the company may receive an offer from a third party.
The shareholders' agreement can establish rules around when and how shares can be transferred.
This can include pre-emption rights, which can give existing shareholders an opportunity to acquire shares before they are transferred more widely, subject to the terms that have been agreed.
It can also include drag-along and tag-along provisions. Drag-along provisions can require minority shareholders to sell when qualifying majority shareholders agree to a sale, while tag-along provisions can give minority shareholders rights to participate in certain sales by majority shareholders.
The drafting needs to reflect the actual ownership and exit objectives of the company rather than simply inserting standard wording.
Founder and investor shareholders' agreements
The priorities of founders and investors are not always identical.
A founder may want to retain control over day-to-day decisions while an investor may require consent over certain significant decisions.
A shareholders' agreement can address these competing requirements through provisions covering matters such as:
- Reserved matters
- Investor consent
- Share transfers
- New share issues
- Board and shareholder decision-making
- Founder commitments
- Leaver provisions
- Information rights
- Exit arrangements
For businesses taking external investment, these provisions should be considered alongside the wider investment documentation and the company's articles.
When a shareholder leaves
Where founders, directors or key individuals hold shares, the agreement may need to address what happens to those shares if they leave.
Good leaver and bad leaver provisions can provide different treatment depending on the circumstances of the departure.
The drafting needs particular care because the consequences can be significant. The relevant circumstances, valuation mechanism, timing and transfer provisions should all be considered together rather than relying on a generic clause.
For businesses using vesting arrangements or founder equity, the shareholders' agreement may also need to work alongside the wider share and employment arrangements.
A disagreement does not necessarily mean that the business has to stop.
07 / Typical situations
When businesses usually ask us to draft or review one
The same handful of circumstances account for most of the shareholders' agreements we are asked to prepare.
01
New company with two or more founders
The founders want to establish the rules for ownership, decision-making and exits before the company grows.
02
External investment
An investor is joining the company and the existing shareholders need to agree how control, consent and future share transfers will work.
03
Family business
A family-owned company is bringing another generation into ownership and needs clearer arrangements around shares, dividends and decision-making.
04
Existing shareholders' agreement
The company already has an agreement, but the ownership, business or shareholder relationships have changed and the document needs to be reviewed.
05
One shareholder wants to leave
A shareholder is considering an exit and the existing agreement needs to be checked before any transfer or negotiation takes place.
06
Shareholder disagreement
The shareholders are already struggling to agree and need to understand what the existing documents provide and what options may be available.
We start by understanding the company and the relationship between its shareholders.
08 / The process
Drafting a shareholders' agreement
That includes the current ownership structure, the roles of the shareholders, how decisions are made, whether there are external investors, and what circumstances you want the agreement to address.
We then agree on the scope and fixed fee before drafting begins.
The agreement is prepared around those objectives rather than simply providing a standard document. We explain the key provisions and their practical effect so that the shareholders understand what they are agreeing to.
01Understand the ownershipWe establish who owns the shares, who runs the business and what decisions currently require agreement.
02Identify the pressure pointsWe consider the situations most likely to matter to the shareholders, including deadlock, transfers, exits, investment and changes in ownership.
03Agree the scopeThe work and fixed fee are agreed before drafting begins.
04Draft and reviewThe shareholders' agreement is prepared and discussed with you, with revisions made as appropriate.
05Check the wider documentsWhere relevant, we consider how the agreement interacts with the company's articles and related shareholder or investment arrangements.
09 / Reviews
Reviewing an existing shareholders' agreement
You do not necessarily need a new agreement simply because the existing one is old.
Start with what you have
Sometimes the more appropriate starting point is to review what you already have and identify provisions that no longer reflect the business.
We can review the existing agreement, explain the areas that require attention and advise on whether amendments or a replacement agreement are appropriate.
A review may be appropriate if:
- A shareholder has joined or left
- The shareholding has changed
- The company has received investment
- The founders' roles have changed
- The business has grown significantly
- The existing agreement contains outdated provisions
- The articles and shareholders' agreement may no longer align
- The shareholders want clearer arrangements for an eventual exit
10 / Fees
Fixed-fee shareholders' agreement legal advice
We believe you should know the cost of the legal work before instructing us.
Shareholders' agreement
From £1,250 + VAT
The final fee depends on the number of shareholders, the complexity of the ownership structure and the provisions required.
The scope and fixed fee are agreed in writing before work starts.
11 / Commitments
Why work with Adroit Legal?
12 / FAQ
Frequently asked questions
Is a shareholders' agreement legally required in the UK?
No. A company is required to have articles of association, but there is no general requirement for a private company to have a shareholders' agreement. A shareholders' agreement is a separate contractual arrangement that can set out additional rights and obligations between the parties who enter into it.
What is the difference between a shareholders' agreement and articles of association?
Articles of association provide the company's constitutional rules. A shareholders' agreement is a private contractual arrangement between the relevant parties and can deal specifically with matters such as shareholder decision-making, transfers, exits and protections. The documents should be considered together so that they work consistently.
How much does a shareholders' agreement cost?
Our shareholders' agreement service starts from £1,250 + VAT. The final fee depends on the scope and complexity of the agreement. We agree the scope and fixed fee in writing before work begins.
Can you review a shareholders' agreement we already have?
Yes. We can review an existing agreement, explain the provisions that matter to your circumstances and identify areas that may need updating following changes to the ownership, business or shareholder relationships.
What happens if we do not have a shareholders' agreement?
There is no single answer because the position depends on the company's articles, the shareholding, the circumstances and the relevant company law. Without a shareholders' agreement, however, shareholders may not have contractual arrangements covering matters they would otherwise have agreed between themselves, such as specific deadlock, transfer or exit provisions.
Can a shareholders' agreement protect minority shareholders?
It can include provisions designed to protect minority shareholders, depending on the circumstances. These may include consent rights, reserved matters, transfer provisions and tag-along arrangements. The appropriate protections depend on the ownership structure and what the shareholders agree.
Should the shareholders' agreement match the articles?
The two documents should be reviewed together. Articles of association form part of the company's constitution, while a shareholders' agreement operates as a separate contractual arrangement. Inconsistencies between them can create problems, so the relationship between the documents should be considered when drafting or reviewing an agreement.
13 / Contact
Talk through your shareholders' agreement
Whether you are setting up a new company, bringing in an investor, reviewing an existing agreement or dealing with a change in ownership, we can discuss what needs to be covered before you decide how to proceed.
We respond to enquiries within two working days.
+44 07580 060703 · info@adroitlegalsolutions.com
Book a free 20-minute call with the lawyer who will handle the work.
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