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Shareholders' Agreement

A shareholders' agreement supplements the Companies Act 2006 and the company's articles of association by addressing what the statutory framework leaves open: how shareholders behave towards each other, what decisions need supermajority approval, what happens on transfer or sale, and how deadlock is broken. Without one, minority shareholders can block change or majority shareholders can act without check. This template is drafted under English law and covers the essentials for a UK private company limited by shares with two or more founders or investors.

When do you need this?

Typical use cases

  • You are founding a company with one or more co-founders
  • You are bringing in a new investor or key employee shareholder
  • You are a family-owned company wanting to formalise governance
  • You want to lock in pre-emption before an outside sale becomes possible
What the contract includes

The contract covers

Identification of the company and each shareholder with holding percentages
Voting rights proportional to holdings
Reserved matters list requiring 75% approval
Pre-emption rights on transfer of shares
Tag-along rights for minority shareholders
Drag-along rights for a 75% majority selling 100%
Lock-up period restricting early transfers
Dividend policy tied to Part 23 CA 2006 distributable profits
Deadlock procedure with mediation and Russian Roulette buyout
Confidentiality during and after shareholding
Prevalence over articles as between shareholders
Governing law and jurisdiction — England and Wales

Legal basis

This template is drafted under the laws of England and Wales and sits alongside the Companies Act 2006 and the company's articles of association. Distributable profits are governed by Part 23 CA 2006. Share transfers may also engage the CA 2006 rules on pre-emption on allotment (s.561), which this agreement does not disapply — it addresses transfer, not issue. It is not tailored for public companies, EIS/SEIS investment rounds, or founders' agreements involving vesting on employment termination.

Questions about shareholders' agreement

Frequently asked questions

How does a shareholders' agreement interact with the articles of association?
The articles are a public document filed at Companies House and bind the company and its shareholders as a matter of company law. A shareholders' agreement is a private contract between the shareholders (and often the company) and is not filed publicly. As between the shareholders, the agreement prevails on any conflict — but third parties dealing with the company can only rely on the articles. Sensitive commercial terms (deadlock, dividend expectations, investor consents) typically live in the agreement, not the articles.
What are drag-along and tag-along rights?
Tag-along protects the minority: if the majority agrees to sell, the minority can require the buyer to purchase their shares on the same terms. Drag-along protects the majority (and a buyer wanting 100%): if a supermajority wants to sell the whole company, they can compel minority shareholders to sell too. Together they align incentives on exit — no one gets left behind, and no minority holder can block a sale that everyone else supports.
Do we need a shareholders' agreement if there are only two of us?
Especially with two shareholders. A 50/50 split can produce deadlock on any decision requiring shareholder approval, potentially freezing the company. Even a 60/40 or 70/30 split leaves gaps the articles do not fill — buy-out mechanics if one founder leaves, whether they can be forced out for cause (a leaver clause), whether their shares should vest over time. The agreement is the vehicle for these founder-critical questions.
Is a shareholders' agreement enforceable against the company itself?
Provisions that purport to bind the company (e.g. requiring the company to declare a dividend, or restricting share issues) are unenforceable if they conflict with the Companies Act — for example, the CA cannot be contracted out of. However, provisions that bind only the shareholders (agreeing among themselves how to vote on a matter) are enforceable as ordinary contract. This is why the agreement is drafted to bind the shareholders' voting behaviour, not the company's ability to act.

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