A shareholders’ agreement is a private contract between the shareholders of a company (and often the company itself) that sets out how the business will be owned, run and, if necessary, exited. There is no legal requirement in England and Wales to have one. Without it, your relationship with your fellow shareholders is governed only by the Companies Act 2006 and the company’s articles of association, which are public documents built for the general case rather than your business. Most companies with two or more shareholders benefit from one, because it fills the gaps the articles leave: what happens when someone wants to leave, when the owners disagree, or when one shareholder wants to sell.
What is a shareholders’ agreement?
It is a written agreement, usually signed by every shareholder, that records the rules the owners have chosen for themselves. Because it is a contract rather than a constitutional document, it is not filed at Companies House and stays confidential. It sits alongside the articles of association and is usually drafted so the two documents work together, with the articles amended at the same time where needed.
A shareholders’ agreement is legally binding on the people who sign it. It does not need to be notarised; it is normally signed as a simple contract or as a deed. New shareholders who join later are usually asked to sign a short deed of adherence so that they are bound too.
What is the difference between a shareholders’ agreement and the articles of association?
Every company must have articles of association. If a company adopts no bespoke articles, the Model Articles under the Companies Act 2006 apply by default. The articles are a public document, they bind the company and all shareholders automatically, and they can be changed by a special resolution, which needs shareholders holding 75% of the votes.
A shareholders’ agreement is different in three practical ways. It is private. It binds only the parties who sign it. And, unless it says otherwise, it can only be changed with the agreement of everyone who is party to it, which gives a minority shareholder far more protection than the 75% threshold in the articles.
One limit worth knowing: a shareholders’ agreement cannot stop the company itself from exercising powers given to it by statute, such as the power to alter its articles. What it can do is bind the shareholders personally to vote a certain way, so that in practice those powers are not used against the deal the owners struck.
Do I need a shareholders’ agreement?
If you are the only shareholder, no. If there are two or more of you, it is worth considering in almost every case, and especially where:
- the shareholders are also the directors and run the business day to day;
- ownership is split 50/50, or in a way that lets one shareholder outvote the others;
- one shareholder has put in more money, more time or key know-how than the others;
- an outside investor, family member or employee is taking a stake;
- you want to control who can become a shareholder in future.
The question to ask is simple: if one of you died, fell out with the others, stopped working in the business or wanted to sell tomorrow, do you know what would happen? If the answer comes from a handshake rather than a document, you need one.
What happens if there is no shareholders’ agreement?
The default rules apply. Under the Model Articles and the Companies Act 2006, ordinary decisions pass on a simple majority of votes and major constitutional decisions need 75%. A shareholder with less than 50% can be outvoted on most things, and one with less than 25% cannot block a special resolution. There is no automatic right to be a director, no right to a dividend unless one is declared, and no mechanism to force a departing shareholder to sell. Someone who leaves the business keeps their shares and their vote. On death, shares pass under the deceased’s will or the intestacy rules, so the remaining owners may end up in business with someone they did not choose.
Where two shareholders each hold 50%, there is no built-in way to break a deadlock, so a disagreement can paralyse the company. The main remedy for a shareholder who has been treated unfairly is a petition under section 994 of the Companies Act 2006 (“unfair prejudice”), but that is litigation: slow, expensive and uncertain. A good agreement is designed so you never need it.
What should be in a shareholders’ agreement?
Every agreement is tailored, but most cover the following:
- Reserved matters. A list of decisions that need the consent of all, or a specified majority of, shareholders rather than just the board. Common examples are issuing new shares, borrowing above a limit, changing the nature of the business, selling major assets and appointing or removing directors.
- Share transfers and pre-emption rights. Rules that give existing shareholders the first chance to buy shares before they can be offered to an outsider, and how the price is fixed.
- Leaver provisions. What happens to the shares of someone who leaves. “Good leaver” and “bad leaver” clauses usually require the departing shareholder to offer their shares for sale, at a price that depends on the circumstances of leaving.
- Drag-along and tag-along rights. Drag-along lets a majority who want to sell the whole company require the minority to sell on the same terms. Tag-along lets the minority join a sale by the majority so they are not left behind.
- Dividend policy. How and when profits will be distributed, and how much will be kept in the business.
- Deadlock resolution. A route out when the shareholders cannot agree: escalation, mediation, a casting vote, or a buy-out mechanism.
- Restrictive covenants and confidentiality. Preventing a shareholder from competing with the company or poaching staff and customers, during and for a period after their involvement.
- Death and incapacity. Often paired with cross-option agreements and life insurance so the survivors can buy the shares and the estate receives fair value. See our guide to what happens to shares on the death of a shareholder.
When should a shareholders’ agreement be put in place?
Ideally at the start, when the company is formed or a new shareholder comes in, because that is when everyone is on good terms and willing to agree sensible rules. It can be signed at any point afterwards, but it needs every relevant shareholder’s signature, and agreement gets harder as the business grows in value. Review it whenever shares change hands or investment comes in.
How much does a shareholders’ agreement cost?
The cost depends on the number of shareholders, how far the commercial terms are already agreed, and whether the articles need amending at the same time. A short agreement for two founders is a different job from a document for a company taking outside investment. Fixed fees are often available for standard company and commercial work, so the sensible first step is a short conversation about what you need so a quote can be given before any work starts. Whatever the fee, it is usually a fraction of the cost of a shareholder dispute.
Frequently asked questions
Is a shareholders’ agreement legally binding?
Yes, between the parties who sign it, in the same way as any other contract. It can be enforced through the courts, and it can include obligations on the company where the company is a party.
Can a shareholders’ agreement override the articles of association?
Not strictly. If the two conflict, the articles govern the company’s internal affairs, which is why the documents are usually drafted together and the articles amended where needed. Most agreements also say that the shareholders will use their votes to give effect to the agreement if there is any inconsistency.
Do all shareholders have to sign a shareholders’ agreement?
No, but it only binds those who do. An agreement that leaves out a shareholder is far less useful, so the aim is normally to have every shareholder, and the company, sign.
Can a shareholders’ agreement be amended?
Yes, but usually only with the written consent of all the parties, unless the agreement itself sets a lower threshold.
Gregory Abrams Davidson’s company and commercial team advises shareholders, founders and investors across Liverpool, Wirral and North West London on shareholders’ agreements, articles of association and shareholder disputes. If you would like to discuss putting an agreement in place, or reviewing one you already have, contact us for an initial conversation.
Important: This guide is general information, not legal advice. It reflects the law and practice in England and Wales at the date shown. Every situation is different, and the process, timescales, costs and requirements can vary depending on your circumstances. For advice on your own situation, please contact Gregory Abrams Davidson.
Last reviewed: October 2026
