Shareholder Agreement Solicitors in London
A shareholder agreement is a private contract between the shareholders of a company, and often the company itself, that sets out how the company is run, how shares can be transferred, how disputes are resolved and what happens when a shareholder leaves.
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Adam Bernard Solicitors drafts shareholder agreements for founders, family businesses, investors and owner-managed companies.
Most shareholder disputes happen because the owners never agreed what would happen if things went wrong. A shareholder agreement is the cheapest way to prevent an expensive dispute.
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Shareholder Agreement vs Articles of Association
The articles of association are a public document that every company must have, while a shareholder agreement is a private contract that adds tailored protections and is harder to change.
- Articles are filed at Companies House and bind the company and its members under the Companies Act 2006. Many companies use the government’s model articles, which are generic.
- Articles can be changed by special resolution (75% of votes) under section 21, so a majority can alter them.
- A shareholder agreement usually requires every party’s consent to change, which protects minority shareholders, and it can remain confidential.
What a Shareholder Agreement Should Cover
A good shareholder agreement covers decision-making, funding, share transfers, leavers, deadlock, restrictive covenants and exit.
• Reserved matters – major decisions that need unanimous or enhanced approval, such as issuing shares, taking on debt or selling the business.
• Board appointments – each shareholder’s right to appoint directors.
• Dividend policy and further funding obligations.
• Pre-emption rights – existing shareholders’ right of first refusal on new shares or transfers. Statutory rights on new share issues are in section 561 but can be disapplied.
• Good leaver and bad leaver provisions – what happens to a departing founder’s shares and at what price.
• Drag-along and tag-along rights – to manage the sale of the whole company.
• Deadlock resolution – essential for 50:50 companies.
• Restrictive covenants – non-compete and non-solicitation restrictions on shareholders.
Dispute resolution – mediation before litigation.
Protecting Minority Shareholders
Minority shareholders have limited statutory protection, so a shareholder agreement is often their most important safeguard. The main statutory remedy is an unfair prejudice petition under section 994 of the Companies Act 2006, which is costly and uncertain. Contractual veto rights, information rights and tag-along rights are more practical.
Protecting Majority and Founder Shareholders
Majority shareholders benefit from drag-along rights, leaver provisions and clear restrictions on transfers to outsiders. These help ensure that a sale of the company cannot be blocked by a small minority and that shares held by departing founders return to those still building the business.
When to Put a Shareholder Agreement in Place
The best time is when the company is formed or when a new shareholder joins, before any disagreement arises. Other trigger points include investment rounds, issuing shares to employees, a founder leaving, or preparing for a sale. Identity verification requirements for directors and people with significant control also now apply; see GOV.UK guidance on verifying your identity for Companies House.
Shareholder Agreements for Family Businesses
Family companies need a shareholder agreement that addresses succession, divorce, death and the involvement of the next generation. Provisions can restrict transfers to family members only and set out how shares are valued and bought back.
Related Agreements
- Directors’service agreements for shareholders who are also
- Jointventure agreements where the company is a collaboration between two
- Non-disclosureagreements for discussions with potential
Shareholder Agreements for Start-Ups and Investors
Start-ups raising investment usually need a shareholder agreement that balances founder control with investor protections. Investor-friendly terms may include information rights, consent rights over key decisions, anti-dilution protection and liquidation preferences.
Founders should make sure vesting schedules, leaver provisions and board composition are workable for the company’s next stage of growth. Taking advice before the first funding round avoids having to renegotiate unfavourable terms later.
How Adam Bernard Solicitors Can Help
We draft shareholder agreements and bespoke articles, review agreements offered to investors through our contract review service, and advise on shareholder disputes. See all our commercial contract services.
Call 0207 100 2525 (24/7) or book a free consultation to discuss your contract.
This page is for information only and does not constitute legal advice.
Frequently Asked Questions
Is a shareholder agreement legally required?
What is the difference between a shareholder agreement and articles of association?
What happens to a founder's shares when they leave?
What are drag-along and tag-along rights?
How can a 50:50 shareholder deadlock be resolved?
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