Shareholders Agreements
A shareholders agreement sets out how a company is run between its owners, and what happens when one of them wants to leave, dies or stops contributing.
- For new and existing companies with 2 or more owners
- Decision making, deadlock, exits and share valuation
- Unitholders agreements for unit trusts on the same basis
- Fixed fee, with 1 round of negotiation included
Owning a company together
Why the Constitution Is Not Enough
A company constitution deals with how the company is governed. It rarely deals with the commercial arrangement between the people who own it.
Most small company constitutions are standard documents that allow directors and shareholders to do a great deal without agreeing on anything in advance. They say little about who contributes what, how a departing owner is bought out, how the shares are valued or what happens if the owners reach a deadlock.
A shareholders agreement fills those gaps. It is a contract between the shareholders, and often the company itself, which records the terms the owners have agreed while relationships are good, so that there is a clear process to follow if circumstances change.
What it covers
What a Shareholders Agreement Covers
The agreement is prepared around the terms the owners have agreed, and highlights the points they still need to decide.
Board and Decision Making
Who is appointed as a director, how decisions are made and which matters need the agreement of all shareholders.
Funding and Contributions
How further capital is raised, whether shareholders must contribute, and how loans from shareholders are treated.
Leaving the Company
Pre-emptive rights, drag-along and tag-along rights, and the process for a shareholder who wants to sell.
Valuing the Shares
How shares are valued on an exit, including who carries out the valuation and whether a discount applies.
Death, Illness and Default
What happens to a shareholder’s shares if they die, become incapacitated or breach the agreement.
Deadlock and Disagreement
A staged process for resolving deadlock and disagreement before either side needs to go further.
Fixed fees for this work are published on our pricing page.
Get a Fixed-Fee QuoteHow it works
From Agreed Terms to Signed Agreement
Share the agreed terms
We ask for the shareholders, the shareholding, the key commercial terms and any points still under discussion.
We confirm the fee
You receive a fixed fee in writing before work starts, with 1 round of negotiation included.
We prepare the agreement
The draft is sent with a short summary of the main clauses and the decisions the owners still need to make.
The owners finalise it
The shareholders review the draft together, return any refinements, and then arrange signing.
Before you start
What the Owners Should Agree First
The agreement records a deal between the owners. The more of that deal is settled before drafting starts, the fewer rounds of changes are needed.
Who owns what: The shareholders, the number and class of shares each holds, and whether any shares are held through a family trust or company.
Roles and contributions: Who works in the business, who is a director, and whether any owner is contributing capital, loans, property or expertise rather than work.
Exit expectations: What should happen if an owner wants to leave, is asked to leave, dies or can no longer work, and whether the remaining owners must, or only may, buy their shares.
Valuation approach: Whether shares are valued by an independent valuer, by a formula, or at an agreed figure reviewed each year.
Common Mistakes
Leaving the exit clauses vague: An agreement that says shares will be sold at fair value, without saying who decides the value or how, often leads to the very disagreement it was meant to prevent.
Ignoring the funding question: If the company needs more money, the agreement should say whether shareholders must contribute and what happens to an owner who cannot.
Not updating it: An agreement prepared for 2 founders may not suit the company once an investor or a third shareholder joins.
Relying on a template from another business: A template reflects someone else’s arrangement and often conflicts with the company’s own constitution.
Points Worth Deciding Early
Agree the exit process first
Most disagreements between owners are about leaving, so the exit and valuation clauses deserve the most attention.
Consider a buy-sell deed
Where insurance funds a buyout on death or disability, a buy-sell deed sits alongside the shareholders agreement.
Check the constitution
The constitution and the agreement should be consistent, and the agreement should say which prevails.
Restraints on departing owners
A restraint on a departing shareholder must be reasonable to be enforceable.
Trust and family shareholders
Where shares are held by a trust or a family company, the agreement should bind the people who control it.
Review as the company grows
New investors, new shareholders or a change in direction are all reasons to revisit the agreement.
Our role is to document the arrangement between the owners. We do not act where a dispute between shareholders has already arisen.
Talk to Us About Your MatterA shareholders agreement is often prepared at the same time as the company is registered or a unit trust is established.
Shareholders Agreement FAQs
When should a shareholders agreement be put in place?
Is a shareholders agreement required by law?
What is the difference between drag-along and tag-along rights?
Does the fee include negotiation between the owners?
Can you prepare a unitholders agreement for a unit trust?
What happens if an owner stops working in the business?
Does a shareholders agreement replace the constitution?
Have a question that is not answered here?
Contact UsSetting Up a Company With Others?
Tell us about the owners and what has been agreed, and we will confirm a fixed fee before any work starts.
Get a Fixed-Fee Quote