Shareholders agreement template

In most situations where a company has more than one shareholder, the shareholders should consider having a Shareholders Agreement between them.

Whilst English company law will provide a default legal framework for some of the matters which an SHA will cover, this default position is unlikely to be suitable for all the situations and potential issues which an SHA will deal with.

In the absence of a Shareholders Agreement, the shareholders will have to rely on the company’s Articles of Association and the general law for their rights and obligations as shareholders.

As examples of matters which a Shareholders Agreement may cover and which would otherwise not be covered or apply in the absence of a Shareholders Agreement:

• a Shareholders Agreement may include positive obligations on the shareholders regarding what each shareholder will do to work in or provide services to the business. For instance, one shareholder may work full-time in the business whilst another may have more of a passive investment role
• each shareholder may want to have a legal right to always be appointed as a director of the company (and not be subject to potential removal as a director by majority shareholder vote pursuant to the Companies Act)
• in the absence of a Shareholders Agreement, important decisions which do not require shareholder approval under the Companies Act (or the company’s Articles of Association) can be taken by majority vote of the directors. A shareholder may want to include in a Shareholders Agreement a specific right to approve or veto certain key matters (referred to as “reserved matters”)
• neither the Companies Act nor the Model Articles contain pre-emption rights, tag-along rights or drag-along rights in connection with the transfer of shares
• a Shareholders Agreement may cover scenarios such as a deadlock between two equal shareholders, the future sale of the company and termination of the shareholding relationship

There is no single standard Shareholders Agreement template.  Key factors which impact the form and consent include:

• are the shareholdings equal (50%/50% shareholdings) or is there are majority shareholder (over 50% shareholding) and one or more minority shareholders (less than 50% shareholding)?
• has the company been formed for a specific purpose or project (a special purpose vehicle or SPV), such as the acquisition and ownership of another company or property, or will the company carry on business as a trading/services company?
• what are the owners’ ultimate expectations for the business – is the aim to grow and then look to sell the company or will the company have no ongoing underlying future value once a particular purpose or project has been achieved or completed?

Typical matters covered in a Shareholders Agreement template include:

• shareholders and shareholdings – names and percentage of shares owned
• share rights and classes of share – will all shares have equal rights or will some shares have special rights, for example to dividends or sales proceeds
• shareholder roles – what role will each shareholder undertake from time to time? This could be providing premises, equipment and services, intellectual property or acting as an employee or consultant
• funding – who will provide the initial finance for the business, how will the funding be provided (share capital or shareholder loan), how will it be repaid and what happens if the business needs more money?
• directors – will all or only some of the shareholders be legal directors of the company?
• board decision-making – how will day to day decisions of the business be made and who can make them? What is the procedure for board meetings (including notice period, quorum requirements and voting)?
• important decisions – a list of important and critical decisions which require consent of all (or a specified majority) of shareholders (“reserved matters”), such as a change to the business or the Articles of Association, the approval of the company’s business plan, major acquisitions and disposals and borrowing money
• additional shares and shareholders – what will be the process for bringing in new shareholders or issuing new shares in the company? Should any new shares be offered to all shareholders first prior to them being issued to a person who isn’t already a shareholder?
• deadlock – what happens if one or more events occur where the shareholders cannot agree or are in dispute? Should the agreement provide a legally binding mechanism for what should happen in this scenario?
• termination – how can the agreement be brought to an end?
• restrictive covenants – should the shareholders be legally restricted from competing with the business or soliciting clients, suppliers and key employees? If so, how long should these restrictions last?
• transfers of shares – what rules should govern the transfer of shares in the company? Should transfers generally be permitted or restricted?  Specific issues include pre-emption rights, good and bad leaver clauses, drag-along rights and tag-along rights and for any new shareholder to become party to the Shareholders Agreement
• governing law and disputes – which law will govern the shareholders agreement and in which court (or arbitration forum) will disputes be heard?

Yes, like any other contract  a shareholders’ agreement can be amended, but only if all the parties to the agreement consent or the agreement contains a mechanism allowing amendments if agreed by a specified percentage of shareholders. Like any contract, the terms are binding unless changed by mutual agreement or in accordance with the contract mechanism.

In practice:

• any amendment should be made in writing and signed by all shareholders who are party to the original agreement
• a formal amendment clause should be included in the agreement itself, setting out the process for making changes
• if new shareholders join the company, they will usually be required to sign a deed of adherence to become bound by the existing shareholders’ agreement, rather than amending the agreement when they join
  

You should not attempt to amend a shareholders’ agreement unilaterally or assume either that changes to the company’s Articles of Association or the parties own conduct or acquiescence will override it. The shareholders’ agreement is a separate legal contract and must be treated as such.

Yes, a shareholders’ agreement is legally binding under English law, provided it is properly drafted and signed by all parties.

It acts as a contract between the shareholders – and sometimes the company itself – setting out their rights, responsibilities and how key decisions will be made. Unlike the company’s Articles of Association, which are a public document filed at Companies House, the shareholders’ agreement is private and typically reflects more detailed, negotiated arrangements.

Because it is a contract, each party must:

• intend to be legally bound by its terms
• sign the agreement (ideally as a deed, to avoid any dispute over consideration)
• follow the terms, including how decisions are made by the company and how shares may be sold or transferred
  

It’s important to note that a shareholders’ agreement cannot override mandatory company law.  Where there is a conflict between the agreement and the company’s Articles of Association, the agreement will usually state that it will take precedence.  However, it is better practice to align the equivalent and overlapping provisions in both the agreement and the Articles.

No, shareholders’ agreements do not need to be registered with Companies House or any other authority in the UK.

Unlike a company’s Articles of Association, which must be filed publicly, a shareholders’ agreement is a private contract between the parties. It is not a legal requirement to disclose it, and its terms will usually remain confidential to the parties and protected by confidentiality obligations in the agreement itself.

This privacy is often one of the key advantages of having a shareholders’ agreement. It allows shareholders to agree detailed rights, restrictions and dispute procedures without those terms appearing on the public record.

However, while registration is not required, it is essential that:

• the agreement is signed by all shareholders intended to be bound by it
• any changes to the agreement are properly documented in an agreed amendment
• any provisions relating to share rights, voting, rights to appoint and remove directors  and the proceedings for board and shareholder meetings are properly reflected in the filed Articles of Association

Generally, a shareholders’ agreement does not need to be witnessed if it is signed as a simple contract. However, it is common – and often recommended – to sign it as a deed, particularly where there is no clear exchange of consideration between the parties.

When signing as a deed:

• each individual must sign the agreement in the presence of a witness
• A UK company can sign by either two directors, one director and the company secretary or one director in the presence of a witness
• the witness must also sign and include their full name, address and occupation
• witnesses should be independent (not a party to the agreement and ideally not a close relative of the individual whose signature is being witnessed)

Signing as a deed strengthens the enforceability of the agreement and avoids disputes over whether each party gave consideration. It also allows for a longer limitation period if any legal action is needed (12 years, compared to 6 years for a simple contract).

All PaperRock shareholders’ agreement templates are structured as deeds and include signature pages that clearly show where witnesses are required. This helps ensure the agreement is properly executed and fully enforceable.

No, a shareholders’ agreement is not compulsory under English law  – but it is highly recommended for most private companies with more than one shareholder.

Without a shareholders’ agreement, the default rules in company law and the company’s Articles of Association will govern the relationship between shareholders. These may not provide enough protection or clarity, particularly around:

• what happens if a shareholder wants to sell their shares
• how decisions are made
• what happens in a deadlock
• how disputes are resolved
• minority shareholder rights

Unlike the Articles, which apply to all shareholders and are public, a shareholders’ agreement is private and can set out tailored arrangements suited to the company’s specific needs.

It also provides legal protection where the Companies Act and Articles are silent or unclear, helping to prevent disputes and providing a practical roadmap for managing ownership and control.

PaperRock’s templates are designed to offer this protection in a clear, cost-effective format, giving your business a stronger foundation for growth.