A shareholders' agreement is a private contract between a company's shareholders that sets out how they'll run the company, sell shares and settle disputes. No UK law requires one, but without it your company runs on its articles and the Companies Act defaults, where a simple majority controls most decisions.
The best way to see what an agreement is for is to look at what happens without one. The default rules are written for strangers, not for two or three founders who've agreed things over coffee. Here's what the law already gives you, where it leaves gaps, and what to put in writing.
What the default rules give each shareholder
Two voting thresholds decide most things. Section 282 defines an ordinary resolution as a simple majority, and section 283 defines a special resolution as a majority of not less than 75%.
| Decision | Threshold | Where it comes from |
|---|---|---|
| Remove a director | Ordinary resolution | Section 168 |
| Declare a final dividend | Ordinary resolution, capped at the directors' recommendation | Model articles, article 30 |
| Issue shares with new rights | Ordinary resolution | Model articles, article 22 |
| Change the articles | Special resolution (75%) | Section 21 |
| Tell the directors what to do | Special resolution (75%) | Model articles, article 4 |
Read that table as the founder with the bigger stake and you can see the problem for whoever holds the rest. The majority can remove the minority from the board, and section 168 says it can do so "notwithstanding anything in any agreement" between the company and the director. A shareholders' agreement can't switch section 168 off, but it can set out what happens to the departing founder's shares and what the others have agreed to do.
The gaps an agreement fills
- Leaving: the model articles have no rule forcing a departing founder to sell their shares back, or setting a price.
- Transfers: article 26 lets directors refuse to register a share transfer, but it doesn't give the other shareholders first refusal.
- Selling the company: there's no default drag-along (forcing a minority to join a sale) or tag-along (letting a minority join one).
- Deadlock: in a 50/50 company there's no tie-break between shareholders, and the chair's casting vote under article 13 only applies at board level.
- Reserved matters: decisions the founders want to need everyone's consent, such as borrowing over a set level or taking on a new co-founder.
- Non-compete and confidentiality between the owners themselves.
New shares are the one area where the law already protects you. Section 561 gives existing ordinary shareholders first refusal on new equity in proportion to their holdings, unless it's been switched off.
The insight people miss: some agreements go public
Articles are filed at Companies House and anyone can read them. A shareholders' agreement is usually private, which is a big part of its appeal. But section 29 catches any agreement signed by all the members that changes something that would otherwise need a special resolution. Section 30 says a copy of that kind of agreement must be sent to the registrar within 15 days, and missing that deadline is an offence. Keep constitutional changes in the articles and the commercial deal in the private agreement.
Agreement or articles: which wins?
They do different jobs, so you'll usually want both to say the same thing. The articles bind the company and every shareholder, including people who buy in later, and they're changed by special resolution under section 21. A shareholders' agreement binds only the people who sign it, and it usually can't be changed without all of them agreeing. That's its strength for a minority founder: the bigger shareholder can't vote it away. It's also why new investors are normally asked to sign a deed of adherence so they're bound too.
What to put in yours
- Who can sit on the board, and how each founder appoints or removes a director.
- A list of reserved matters that need unanimous or high-majority consent.
- Leaver terms: what happens to a founder's shares if they quit, are dismissed or die, and how the price is set.
- Pre-emption on transfers so existing shareholders get first refusal.
- Drag-along and tag-along terms for a future sale.
- A deadlock procedure and a dispute route before anyone goes to court.
- Dividend policy, if the founders want profits paid out on a set basis.
Directors still owe their legal duties whatever the agreement says. My guide to fiduciary duty explains them. If you're forming the company now, registering a company in the UK shows where the articles fit in, and the dividend allowance covers how dividends are taxed in your hands.
My verdict
If there's more than one shareholder, write the agreement before you need it. The defaults favour whoever holds the most shares, and a minority founder has very little say after a falling out. Agree leaver terms and deadlock rules on a good day, and check whether anything you've signed needs filing within 15 days.
Frequently asked questions
Is a shareholders' agreement a legal requirement?
No. UK company law doesn't require one. Without it, the company runs on its articles and the Companies Act 2006 defaults.
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What's the difference between articles of association and a shareholders' agreement?
Articles are the company's public constitution filed at Companies House and changed by special resolution. A shareholders' agreement is usually a private contract between the shareholders.
Can a shareholders' agreement stop a director being removed?
Not directly. Section 168 lets the company remove a director by ordinary resolution notwithstanding anything in any agreement between it and the director.
What majority is a special resolution?
Section 283 says a special resolution needs a majority of not less than 75%.
Does a shareholders' agreement have to be filed at Companies House?
Usually not. But under sections 29 and 30, an agreement signed by all members that does the job of a special resolution must be sent to the registrar within 15 days.
What happens in a 50/50 company with no agreement?
There's no default tie-break between shareholders. The chair's casting vote under model article 13 only applies to directors' meetings.
Can directors refuse to register a share transfer?
Yes. Model article 26 says the directors may refuse to register the transfer of a share.
Do new shareholders have to sign the existing agreement?
Only if they agree to. A shareholders' agreement binds the people who sign it, which is why new investors are usually asked to sign a deed of adherence.
Who decides dividends without a shareholders' agreement?
Under model article 30, shareholders declare final dividends by ordinary resolution, and the amount can't exceed what the directors recommend. Directors can also pay interim dividends.
