Shareholders’ Agreements FAQ Guide – SHA Series Part 1 of 5

Shareholders’ agreements are a crucial but often overlooked tool for companies with multiple owners. While many rely solely on standard articles of association, this can leave significant gaps in governance and protection.

What is covered in this article:

• Timeline of Shareholders’ Agreement miniseries
• What is a Shareholders’ Agreement?
• Why use a Shareholders’ Agreement (instead of relying on articles of association)?
• What issues could arise from not having a Shareholders’ Agreement in place?
• Worked examples: company with and without a shareholders’ agreement facing the same issue

Timeline of Shareholders’ Agreement miniseries

‘The Shareholders’ Agreement miniseries’ is intended to provide a brief practical overview of shareholders’ agreements – who are they for, what are they, why they are used and how they operate.

Over the coming months, a series of articles will be released covering the following subject matters:

• Key provisions found in a Shareholders’ Agreement – September 2026
• Shareholders’ Agreements for Founders and Investors – October 2026
• Shareholders’ Agreements for Shareholders and third – party buyers – November 2026
• Series round up – December 2026

What is a Shareholders’ Agreement?

A shareholders’ agreement is a private, legally binding contract between some or all of a company’s shareholders. The intention is to regulate the relationship between those shareholders, as well as set out how the company is owned, controlled and managed. More importantly, they help govern what can or cannot be done when a particular event arises.

A shareholders’ agreement sits alongside the company’s articles of association, which are in contrast, publicly accessible at Companies House. In most cases, the agreement goes beyond the constitutional document by addressing commercially sensitive matters in detail the shareholders would prefer to keep private and confidential.

Why use a Shareholders’ Agreement (instead of relying on articles of association)?

There are various reasons why a shareholders’ agreement should be considered:

• Confidentiality – shareholders’ agreements are popular because they are private agreements, unlike articles of associations which are filed and publicly accessible at Companies House.
• Certainty and clarity – as a default position, a high volume of new companies registered at Companies House rely exclusively on the generic Model Articles, if bespoke ones are not produced. The shareholders’ agreement can be tailored to reflect a company’s governance and procedures privately, to suit its specific business needs and shareholders’ expectations.
• Protecting minority and majority shareholders – articles of association and Companies Act 2006 tend to favour majority control or certain decisions. A shareholders’ agreement can (amongst others) be drafted to require unanimous consent, prevent dilution of shares and allow access to certain information is made accessible by minority shareholders.*
• Pre–emption rights/regulating share transfers – contractual restrictions on who and how shareholders transfer their shares may be limited or non-existent. A shareholders’ agreement could incorporate pre-emption rights, leaver provisions and valuation mechanisms to name a few, relating to those share transfers.

*A well drafted articles of association can also provide this but as mentioned, is publicly accessible.

What issues could arise from not having a Shareholders’ Agreement in place?

Relying solely on articles of association without a shareholders’ agreement can leave key aspects of the shareholder relationship unanswered and unregulated. Majority shareholders can control most decisions, such as appointing or removing directors and determining when dividends are paid, leaving minority shareholders vulnerable, especially where there is no clear built-in mechanism for resolving disputes or deadlock.

There is also no clear mechanism for shareholders wanting to exit the company (i.e., sell their shares), no particular valuation method or contractual controls over how and when share transfers take place. This can result in shareholders being effectively locked into the company with very limited options, whereas a shareholders’ agreement could incorporate a clear structure, governance, protections as well as clear exit and dispute resolution mechanisms.

Worked Examples: With and without shareholders’ agreement facing the same issue

1. Company WITHOUT Shareholders’ Agreement with articles of association: Example 1

Company A:

• Company A name: ABC Limited
• Shareholding:
  • Founder A: 60% (also director)
  • Founder B: 40% (also director)
• Articles: Model Articles
• No shareholders’ agreement

Situation develops:

• After 2 years, Founder A wishes to sell their shares to a willing third-party buyer wanting to purchase 100% of ABC Limited.
• However, there are no:
  • valuation mechanisms in place;
  • exit rights; or
  • drag/tag provisions.
• Without drag along rights and other protections, Founder A would be unable compel/force Founder B to sell their minority stake (so buyer takes 100% as opposed to 60% only), without express agreement. As a result, Founder B would be required to cooperate with the sale/waive pre-emption rights, causing an issue if the relationship between the two founders had broken down. If Founder B refuses, the current offer could fall through, or the buyer proceeds with purchasing only 60% and not the intended 100%.

2. Company WITH Shareholders’ Agreement and articles of association: Example 2

Company B:

• Company B name: QWERTY Limited
• Same facts as above in Company A but with shareholders’ agreement in place

Same situation:

• Founder A wishes to sell their shares to third-party buyer, who wishes to acquire 100% of Company B.
• There is a shareholders’ agreement in place covering key protections (among other things). More importantly drag along rights have been incorporated into the agreement, allowing Founder A to compel/force the minority shareholder (Founder B) to accept an offer to sell to the third-party buyer, on the same terms and conditions. If Founder A did not enforce the drag along rights, Founder B could instead rely on the tag along rights, to ensure they are included in the sale, on the same terms and conditions, and not left behind.

 A shareholders’ agreement is essential as it moves beyond the limited, procedural framework of articles of association and provides a clear contractual structure and mechanism governing how a company’s shareholders make decisions, interact and resolve disputes. It also protects minority investors from being unfairly excluded from wider transactions, and creates defined mechanisms for exiting, transfer of shares, declaring of dividends, how decisions and disputes are handled and more. Without it, shareholders face a future of uncertainty and imbalance of power, which could lead to costly litigation – whereas a well-drafted shareholders’ agreement promotes fairness, clarity and long-term business stability.

Contact our shareholder agreement experts

If you have questions about shareholders’ agreements or need advice tailored to your business, contact our experienced lawyers today to discuss how we can help protect your interests and strengthen your company’s governance.