Shareholders' Agreement UK: What to Include (2026)

At a glance

• No legal requirement: a UK company only has to have articles of association. A shareholders' agreement is optional but strongly advisable once there is more than one owner.
• Public vs private: the articles are filed at Companies House and are public. A shareholders' agreement is a private contract and, in most cases, stays confidential between the parties.
• The statutory contract: section 33 of the Companies Act 2006 makes the articles bind the company and every member automatically, as if each had signed a covenant to observe them.
• Changing the documents: the articles can normally be altered by a 75% special resolution (section 21). A shareholders' agreement typically needs the consent of everyone who signed it, which is what makes it a stronger protection for minority shareholders.
• Who is bound: the articles bind the company and all members automatically; a shareholders' agreement only binds those who actually sign it, so new shareholders are often required to sign a deed of adherence.
• Statutory fallback without an agreement: the main protections are the unfair prejudice petition under section 994 of the Companies Act 2006, and, in extreme cases, a just and equitable winding-up petition under section 122(1)(g) of the Insolvency Act 1986 — both are court processes, not quick fixes.
• Director removal cannot be contracted away: section 168 of the Companies Act 2006 allows removal of a director by ordinary resolution "notwithstanding anything in any agreement" — a shareholders' agreement can attach consequences to a bad-faith removal, but it cannot block the resolution itself.

What is a shareholders' agreement?

A shareholders' agreement is a private contract between some or all of the shareholders in a company — and often the company itself — that sets out how the owners have agreed to run things between themselves. It covers decision-making, share transfers, dividends, what happens if someone leaves, dies, or falls out with the others, and how disputes get resolved.

It sits alongside the company's articles of association, but the two documents are legally different in an important way. The articles are the company's constitution, and under section 33 of the Companies Act 2006 they form a statutory contract: they bind the company and every member automatically, as if each member had personally covenanted to observe them, even a member who never signed anything. A shareholders' agreement is an ordinary contract in the normal sense — it only binds the people who actually sign it, and it becomes effective through ordinary contract law rather than company law.

Because it is a private contract, the parties can tailor it precisely to their situation, whether that is two co-founders splitting a start-up 50/50, a family business bringing in the next generation, or a joint venture between corporate investors. It does not replace the articles — it works alongside them, and a properly drafted agreement usually requires the shareholders to vote in favour of amending the articles if the two ever pull in different directions.

How a shareholders' agreement fits with the articles of association

Every company needs articles; not every company needs an agreement

Every UK limited company must have articles of association. If a company does not register bespoke articles when it incorporates, the relevant set of model articles applies automatically in their place under section 20 of the Companies Act 2006. GOV.UK publishes the current model articles of association for limited companies, including the separate model articles for private companies limited by shares. Many small companies still run on these default articles years after incorporation, often without realising how limited they are on shareholder-level issues like exit terms and deadlock.

A shareholders' agreement is never compulsory. It becomes necessary in practice once a company has more than one owner and those owners want protections, or commitments, that go beyond what the default company law framework and the model articles provide.

The statutory contract under section 33

Section 33 is the legal mechanism that makes the articles unusually powerful compared with an ordinary contract. It provides that the provisions of a company's constitution bind the company and its members "to the same extent as if there were covenants" between them to observe those provisions. This is why the articles govern the company's own conduct — its board, its share register, its formal decision-making — even for a shareholder who joined after the articles were last agreed and never negotiated a word of them.

A shareholders' agreement has no equivalent statutory force. It binds only its signatories, under the ordinary law of contract. That is a deliberate trade-off: the articles are automatic but public and relatively easy to change by majority vote; the agreement is confidential and normally requires unanimous consent to change, but only protects the people who sign it.

Changing the articles versus changing the agreement

Under section 21 of the Companies Act 2006, a company may amend its articles by special resolution, which requires at least 75% of the votes cast by members entitled to vote. Once passed, a copy of the resolution must generally be filed with the registrar within 15 days, and the updated articles are then part of the public record.

A shareholders' agreement is different. Because it is an ordinary contract, it is amended in whatever way the agreement itself specifies — commonly, written consent from all the parties, or from a defined supermajority of them. This is one of the main reasons companies use a shareholders' agreement at all: unlike the articles, a well-drafted agreement generally cannot be changed over the objection of a party who signed it, which gives real, durable protection to a minority shareholder that a 75%-majority-amendable set of articles cannot offer on its own.

A registration nuance worth knowing

A shareholders' agreement is not normally filed anywhere and stays confidential. However, sections 29 and 30 of the Companies Act 2006 require certain resolutions and agreements that affect a company's constitution to be sent to the registrar within 15 days — including, in some circumstances, a unanimous agreement between all the members that achieves something which would otherwise have needed a special resolution to take effect. Whether a particular shareholders' agreement falls within that category depends on exactly what it does and how it is structured. This is a technical point best checked with whoever drafts the agreement, rather than assumed away.

The Companies Act 2006 framework at a glance

| Provision | What it covers | Why it matters for a shareholders' agreement | |---|---|---| | s.20 | Default application of model articles | Sets the fallback constitution if a company has not registered its own articles | | s.21 | Amendment of articles by special resolution (75%) | Shows how easily the articles can change compared with a shareholders' agreement | | ss.29–30 | Resolutions/agreements affecting the constitution; filing duty | The narrow circumstances in which even a private agreement can become registrable | | s.33 | The statutory contract | The articles bind the company and every member automatically; the agreement does not | | s.168 | Removal of a director by ordinary resolution | Cannot be overridden by any agreement — plan consequences, not prevention | | s.561 | Statutory pre-emption on new share allotments | A default protection against dilution that can be excluded or modified | | s.771 | Procedure once a share transfer is lodged | Sets the company's deadline and duty to give reasons if it refuses to register a transfer | | s.994 | Unfair prejudice petition | The main statutory fallback for a minority shareholder if there is no agreement | | Insolvency Act 1986, s.122(1)(g) | Just and equitable winding up | A last-resort court remedy where trust between shareholders has broken down entirely |

What to include in a shareholders' agreement

Reserved matters and decision-making

Start by deciding which decisions the directors can make alone, which need a simple majority of shareholders, and which need unanimous or supermajority consent. Matters commonly "reserved" for shareholder-level agreement include issuing new shares, changing the nature of the business, borrowing above a set threshold, granting security over company assets, or selling the company. Listing these explicitly avoids arguments later about whether a decision needed wider sign-off.

Share transfers, pre-emption and consent

Set out what happens when a shareholder wants to sell. Pre-emption rights give existing shareholders first refusal on shares being sold, so ownership does not drift to outsiders without the others having a chance to buy in first. This is a matter the parties agree contractually in the shareholders' agreement (and often mirror in the articles); it is separate from the statutory pre-emption right in section 561 of the Companies Act 2006, which protects existing shareholders specifically when the company allots new shares, not when an existing shareholder transfers shares they already hold. Where a transfer is put through and the directors refuse to register it, section 771 requires the company to notify the transferee and give reasons within two months.

Drag-along and tag-along rights

Drag-along rights let a majority force a minority to sell on the same terms if the majority accepts a genuine third-party offer for the whole company — useful because a buyer often wants 100% of the shares, not 80%. Tag-along rights work the other way: they let a minority shareholder join a sale on the same terms the majority is getting, so they are not left holding shares in a company under new, unfamiliar ownership. Neither right exists automatically under company law; both are purely contractual and need to be drafted into the agreement (and usually cross-referenced in the articles).

Dividends, funding and financial matters

Decide how profits will be distributed, whether dividends are automatic once profits allow or fully discretionary, and how additional funding will be raised if the business needs cash — further shareholder loans, external investment, or new share issues. Address how any new share issue will affect the pre-emption protections already agreed, so a funding round cannot be used to quietly dilute a shareholder who is not part of the decision.

Deadlock and dispute resolution

In a 50/50 company particularly, deadlock can paralyse the business if the two owners cannot agree. Options include compulsory mediation before either side can take further steps, referral to an independent expert on a defined technical question, or a "shotgun" or buy-sell clause: one shareholder names a price at which they will buy the other out, and the other can either accept that price as seller or flip it and buy the first shareholder out at the same price. Building in a mechanism before a dispute happens is far cheaper than negotiating one once relations have broken down.

Leaver provisions: death, incapacity and bad leavers

Without a provision, a deceased shareholder's shares usually pass under their will or the intestacy rules, which can hand a stake in the business to someone the other owners have never worked with. Agreements commonly include compulsory transfer clauses triggered by death, permanent incapacity, or leaving employment — sometimes backed by life insurance or cross-option arrangements — so the remaining shareholders can buy the shares at a value set by an agreed formula rather than negotiating from a standing start. Many agreements also distinguish "good leaver" and "bad leaver" scenarios, with a lower valuation for someone who leaves in breach of the agreement or through misconduct.

Confidentiality and restrictive covenants

Because shareholders often have access to sensitive commercial information, agreements typically include confidentiality obligations that survive after someone stops being a shareholder, together with reasonable non-compete and non-solicitation restrictions covering the period they hold shares and a limited period after they leave. These need to be proportionate to be enforceable — overly broad restrictions risk being unenforceable as an unreasonable restraint of trade.

Director removal and founder protection

A shareholders' agreement cannot prevent a director being removed by ordinary resolution: section 168 of the Companies Act 2006 applies "notwithstanding anything in any agreement between [the company] and him". What an agreement can do is attach consequences to a removal that breaches the founders' original understanding — for example, triggering a compulsory buy-back of the removed director's shares, or a right to claim damages for breach of contract. A separate mechanism, built into the articles rather than the shareholders' agreement, is weighted voting: the House of Lords confirmed in Bushell v Faith [1970] AC 1099 that articles can validly give a director extra votes specifically on a resolution to remove them, without conflicting with the statutory right of removal.

Worked example: a 50/50 deadlock

Two friends, Priya and Tom (a fictional example), each hold 50% of the shares in a company they founded together. The company's articles are the unmodified model articles, and there is no shareholders' agreement. After two years, they disagree fundamentally about whether to take on external investment. Because they hold equal shares, neither can pass an ordinary resolution against the other's wishes, and the board — also split 50/50 — cannot resolve it either. The business stalls: no new funding decision can be made, and it becomes progressively harder to run day-to-day operations that need shareholder-level sign-off.

Without an agreed deadlock mechanism, Priya and Tom's options are limited to negotiation, informal mediation, or, if relations break down entirely, a court application — potentially an unfair prejudice petition under section 994, or in the most severe case a petition to wind up the company on just and equitable grounds under section 122(1)(g) of the Insolvency Act 1986. Both routes are slow and expensive, and winding up the company destroys the value both of them built.

Had they signed a shareholders' agreement with a shotgun clause at the outset, either one could have named a buy-out price, with the other choosing to sell at that price or buy the first out at the same figure — resolving the deadlock in weeks rather than through litigation that could take a year or more.

What happens if there is no shareholders' agreement

Without an agreement, the company runs entirely on the Companies Act 2006 and its articles — for most companies, the model articles or a lightly modified version of them. That framework is built around majority rule: a simple majority controls ordinary decisions, and a 75% majority can change the articles themselves under section 21. There is comparatively little built-in protection for a minority shareholder beyond the statutory unfair prejudice petition under section 994, which requires a court application and does not offer a quick or cheap resolution. There is also no agreed exit price or mechanism, so a shareholder who wants to leave — or whom the others want to buy out — has to negotiate from scratch, often without leverage on either side and sometimes without any way to force a resolution short of litigation.

Shareholders' agreement vs articles of association

| | Articles of association | Shareholders' agreement | |---|---|---| | Legally required | Yes — every company must have them | No — optional | | Public or private | Public, filed at Companies House | Private, normally stays confidential | | Who is bound | Company and all members automatically (s.33) | Only the parties who sign it | | How it is changed | 75% special resolution (s.21) | Usually unanimous consent, or the threshold the agreement sets | | Typical content | Company's internal rules, directors' powers, share classes | Exit terms, deadlock, reserved matters, valuation, restrictive covenants |

Who needs a shareholders' agreement?

Any UK private company with more than one shareholder is a candidate, but it matters most where the shareholders are not equally positioned or the stakes of getting it wrong are high: co-founders splitting equity roughly evenly, a business bringing in an external investor, a family company handing shares to the next generation, or a joint venture between two corporate partners. The fewer the shareholders and the more personal the relationship, the more valuable an agreed exit mechanism becomes, because informal trust is exactly what tends to be tested when the business is under pressure.

How to put a shareholders' agreement in place

1. Work out who the parties are and what they own. Identify every shareholder who will sign, the number and class of shares each holds, and the voting rights attached to those shares.
2. Agree how decisions will be made. Decide which matters the directors can decide alone, which need a simple shareholder majority, and which need unanimous or supermajority consent.
3. Set out share transfer rules. Cover pre-emption on transfer, drag-along and tag-along rights, and compulsory transfers on death, incapacity, or leaving.
4. Address dividends, funding and exit. Decide how profits are distributed, how new funding will be raised, and how the business will eventually be sold, passed on, or wound down.
5. Plan for deadlock and disputes. Include a mechanism — mediation, an independent expert, or a buy-sell clause — for situations a 50/50 or closely balanced company can otherwise fall into.
6. Check the articles align. Confirm the shareholders' agreement and the articles of association do not contradict each other, and commit in the agreement to amending the articles if a conflict is later identified. See our guide on amending your company's articles of association for how that process works.
7. Get every shareholder to sign, or plan for adherence. Because the agreement only binds signatories, decide whether every current shareholder will sign now and whether new shareholders will be required to sign a deed of adherence before shares transfer to them.

This guide provides general information about shareholders' agreements in England and Wales. It is not legal advice and is not a substitute for advice tailored to your specific circumstances. The law described was accurate as at July 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position.

Last reviewed: July 2026 · Next review due: July 2027 or on legislative change.