Shareholders' agreement solicitors in Leicester

A shareholders’ agreement is a contract between a company’s shareholders about how the company is run and what happens when things change. Every company has articles of association, but model or standard articles say very little about the situations that cause most disputes in small companies.

What it usually covers

• Decision-making. Which decisions need the agreement of all or most shareholders, such as borrowing, issuing new shares, taking on senior staff or selling the business.
• Leavers. What happens to a shareholder’s shares if they stop working in the business, and at what price. ‘Good leaver’ and ‘bad leaver’ terms are common.
• Death and incapacity. Whether the other shareholders can buy the shares from a deceased shareholder’s estate, often backed by insurance.
• Deadlock. What happens if 50/50 shareholders can’t agree.
• Transfers. Rights of first refusal before shares are sold to an outsider, plus drag-along and tag-along rights on a sale of the whole company.
• Protecting the business. Restrictions on shareholders competing or poaching staff and clients.
• Dividends and funding. Dividend policy and whether shareholders must put in more money.

Why it matters

Without an agreement, a minority shareholder who leaves can often keep their shares indefinitely and share in future growth they don’t contribute to, and a falling-out between equal shareholders can paralyse a company. Disputes of that kind are expensive to litigate. An agreement written while everyone gets on is much cheaper than a dispute later.

Related documents

A shareholders’ agreement often goes with updated articles of association, service agreements for directors, and sometimes a share option scheme for key employees.

Common questions