A shareholder agreement is a private contract between the shareholders of a company that governs how the company is run, how disputes between shareholders are resolved, and how shares can be bought and sold. Unlike the company's Articles of Association, a shareholder agreement is private and does not need to be filed at Companies House.
Without a shareholder agreement, all shareholder disputes are governed by the Companies Act 2006 and the company's Articles of Association. This creates serious risks:
| Provision | What it does |
|---|---|
| Pre-emption rights | Existing shareholders get first refusal before shares are sold to an outsider |
| Drag along rights | Majority shareholders can force minority to sell to a buyer (prevents holdouts) |
| Tag along rights | Minority shareholders can join a sale on the same terms as majority |
| Deadlock provisions | Mechanism to resolve 50/50 disputes — Russian roulette, shotgun, casting vote |
| Good leaver/bad leaver | Different share valuation depending on why a shareholder-director leaves |
| Reserved matters | Decisions that require unanimous or supermajority consent regardless of share % |
| Non-compete/non-solicit | Restrictions on departing shareholders competing or poaching clients/staff |
| Dividend policy | Agreement on when and how dividends are declared |
A 50/50 split between two shareholders or groups is the most common source of company disputes. Without a deadlock resolution mechanism in the shareholder agreement, a deadlock can paralyse the company entirely. Common mechanisms include:
DocPilot's Partnership Agreement covers profit sharing, decision making, dispute resolution, and exit mechanisms for business partnerships. Updated for current UK law.
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