Shareholders' agreement

You should use this template shareholders’ agreement if:

• your company has more than one shareholder;
• your company has only one class of ordinary shares;
• you do not currently have a shareholders’ agreement; and
• your company currently uses the default model articles of association.

When creating your shareholders' agreement, you can choose whether to cover the issue of shares to a new share investor.

This agreement can be used when you first set-up your company or at any time after your company has been set up.

You will need to adopt new articles of association at the same time as your company enters into this shareholders’ agreement. If you choose to issue shares to a new share investor, you will also need to issue those shares at the same time as the company enters into the shareholders' agreement.

This shareholders’ agreement contains provisions regarding:

• the business of your company;
• the composition and chair of your company’s board;
• transfer of existing shares;
• issue of new shares;
• what happens when a shareholder dies;
• which decisions should require shareholders’ consent;
• which shareholders’ should be responsible for providing shareholders’ consent;
• when minority shareholders can be required to sell their shares;
• how shareholders should resolve any deadlock or dispute which might occur;
• the number and price of the shares to be issued to the new investor (if applicable); and
• the rights of shareholders to receive company information.

Without a shareholders’ agreement in place, you may face disagreements between your shareholders on matters such as:

• when your board should get shareholders’ approval;
• whether any important decisions, such as issuing more shares which dilute the power of existing shareholders or purchasing another business, need consent from all or nearly all shareholders;
• if any shareholder can transfer their shares as they think fit without first offering them to the other shareholders; and
• when your business is sold and how you go about this.

In the absence of a shareholders’ agreement, unless a matter specifically requires shareholder approval under company law or under the terms of your articles of association, it will be decided at board level by default. This can be undesirable for certain key or sensitive decisions.

You should also bear in mind that if ownership of your company is shared evenly (for instance a 50:50 jointly-owned company), without a shareholders’ agreement there is also a chance of deadlock occurring. In the absence of a shareholders’ agreement, if the joint owners of a company disagree on a certain matter, it can be very difficult to find a solution. A shareholders’ agreement seeks to pre-empt this by clearly allocating responsibility for decisions on certain key matters, and including a mechanism for resolving any deadlock which might occur.

For further guidance on shareholders’ agreements, including more detailed information on why they are important and what matters they will usually cover, see Shareholders’ agreements.

Our Shareholders' agreement toolkit will also guide you through the process and appropriate documents.

For a blog explaining how to use this document further, see Shareholders Agreement: guidance and a customisable template.