A shareholder agreement is a private contract between the shareholders of a company. Unlike the Articles of Association (which are public), it stays confidential and deals with the practical realities of running a business with multiple owners.
Why You Need One
When everything is going well, it feels unnecessary. When things go wrong — and they often do — it is the most important document your company has. Without one, you rely on default Companies Act provisions, which rarely cover real-world disputes.
Key Clauses
- Decision-making — which decisions need unanimous consent vs majority?
- Dividend policy — when and how are profits distributed?
- Director appointments — who can appoint and remove directors? See our directors guide.
- Share transfers — pre-emption rights, drag-along and tag-along.
- Good leaver / bad leaver — what happens to shares when someone leaves?
- Non-compete — restrictions on competing businesses.
- Deadlock provisions — what if shareholders are split 50/50?
- Exit strategy — how and when can shareholders sell? Valuation method.
vs Articles of Association
Articles are public (viewable on BizLookup) and cover basic constitutional rules. The shareholder agreement is private and more detailed. Where they conflict, the agreement generally prevails between parties.
When to Create One
Ideally at incorporation. In practice, many do it later — when a new shareholder joins, the company starts making money, or shareholders realise they have different expectations.
Cost
Templates work for basic agreements. For significant money or complex structures, get a solicitor (£500-3,000). It is one of the best investments a multi-shareholder company can make.