Shareholders' Agreement (UK)
This Shareholders' Agreement (the "Agreement") is entered into on [Effective Date] (the "Effective Date") by and between:
(1) [Shareholder 1 Name], [Shareholder1 Type], of [Shareholder 1 Address] ("Shareholder 1");
(2) [Shareholder 2 Name], [Shareholder2 Type], of [Shareholder 2 Address] ("Shareholder 2"); and
(3) [Company Name], a company incorporated in England and Wales with company number [Company Reg Number], whose registered office is at [Company Address], [Company City], [Company Postcode] (the "Company").
Shareholder 1 and Shareholder 2 are referred to collectively as the "Shareholders" and individually as a "Shareholder". The Shareholders and the Company are referred to collectively as the "Parties" and individually as a "Party".
BACKGROUND
(A) The Company is a [Share Class] company incorporated in England and Wales.
(B) At the date of this Agreement, the issued share capital of the Company consists of [Total Share Capital] [Share Class], of which [Shareholder 1 Shares] ([Shareholder 1 Percentage]) are held by Shareholder 1 and [Shareholder 2 Shares] ([Shareholder 2 Percentage]) are held by Shareholder 2.
(C) The Shareholders wish to regulate their relationship as shareholders of the Company and to set out certain rights and obligations in relation to the management and governance of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set out herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires:
- "Act" means the Companies Act 2006;
- "Articles" means the articles of association of the Company as amended from time to time;
- "Board" means the board of directors of the Company from time to time;
- "Business" means the business carried on by the Company from time to time;
- "Business Day" means a day (other than a Saturday, Sunday, or public holiday) on which clearing banks are open for business in the City of London;
- "Deadlock" has the meaning given in clause 9;
- "Fair Market Value" means the value of the Shares as determined by an independent chartered accountant or valuer appointed by agreement between the Shareholders or, failing agreement, by the President of the Institute of Chartered Accountants in England and Wales;
- "Group Company" has the meaning given in section 474 of the Act;
- "Reserved Matters" has the meaning given in clause 5;
- "Shares" means the ordinary shares in the capital of the Company.
1.2 Unless the context otherwise requires, words and expressions used in this Agreement shall have the same meaning as in the Act.
1.3 In the event of any conflict between the provisions of this Agreement and the Articles, the provisions of this Agreement shall prevail as between the Parties, and the Parties shall exercise all voting rights and powers available to them to procure that the Articles are amended to the extent necessary to give effect to the provisions of this Agreement.
2. BUSINESS OF THE COMPANY
2.1 The Business of the Company shall be conducted in accordance with this Agreement, the Articles, and all applicable laws.
2.2 Each Shareholder undertakes to the other Shareholders and to the Company that they will exercise all voting rights and powers of control available to them in relation to the Company so as to procure (insofar as they are able by the exercise of such rights and powers) that the provisions of this Agreement are fully and promptly observed and given effect to.
3. SHARE CAPITAL
3.1 At the date of this Agreement, the issued share capital of the Company consists of [Total Share Capital] [Share Class], held as follows:
- Shareholder 1: [Shareholder 1 Shares] Shares ([Shareholder 1 Percentage]);
- Shareholder 2: [Shareholder 2 Shares] Shares ([Shareholder 2 Percentage]).
3.2 No new Shares shall be allotted or issued by the Company without the prior approval of the Shareholders in accordance with the Reserved Matters procedure set out in clause 5, and subject to the statutory pre-emption rights under sections 561-577 of the Act (unless disapplied by a Special Resolution).
4. BOARD COMPOSITION AND MEETINGS
4.1 The Board shall consist of [Total Board Size] directors, composed as follows:
- Shareholder 1 shall be entitled to appoint (and remove) [Shareholder 1 Directors] director(s);
- Shareholder 2 shall be entitled to appoint (and remove) [Shareholder 2 Directors] director(s).
4.2 Each Shareholder may remove any director appointed by them and appoint a replacement at any time by giving written notice to the Company and the other Shareholders.
4.3 The quorum for board meetings shall be [Board Quorum]. If a quorum is not present within 30 minutes of the time appointed for the meeting, the meeting shall be adjourned to the same time and place 7 Business Days later.
4.4 Questions arising at a board meeting shall be decided by a majority of votes. Each director shall have one vote. The chairman of the Board (if any) shall not have a second or casting vote.
4.5 The Board shall meet at least quarterly, or more frequently as the business of the Company may require.
5. RESERVED MATTERS
5.1 The following matters (the "Reserved Matters") shall not be undertaken or approved by the Board or the Company without the prior written consent of [Reserved Matter Threshold]:
[Reserved Matters].
5.2 Any action taken by the Company in breach of this clause 5 without the required consent shall be voidable at the election of any Shareholder who did not give such consent.
6. DIVIDEND POLICY
6.1 [Dividend Policy]
6.2 No dividend may be declared or paid except out of profits available for distribution in accordance with Part 23 of the Act (sections 830-847).
6.3 Dividends shall be paid in proportion to the number of Shares held by each Shareholder, unless otherwise agreed in writing by all Shareholders.
7. DEADLOCK
7.1 A "Deadlock" shall be deemed to have occurred if the Board or the Shareholders are unable to reach a decision on any Reserved Matter or any other matter requiring their approval after two consecutive meetings (or written resolution attempts) at which the matter has been considered.
7.2 In the event of a Deadlock, the matter shall be resolved by [Deadlock Mechanism].
7.3 If the Deadlock is not resolved within 60 days following the initial notification of the Deadlock, either Shareholder may serve written notice on the other Shareholder proposing that one Shareholder purchase the other Shareholder's Shares at Fair Market Value.
8. INFORMATION RIGHTS
8.1 The Company shall provide the Shareholders with the following information: [Information Rights].
8.2 Each Shareholder shall have the right to inspect the books and records of the Company at its registered office during normal business hours upon giving not less than 5 Business Days' written notice.
9. CONFIDENTIALITY
9.1 Each Party undertakes that it shall not at any time during or after the term of this Agreement disclose to any person any Confidential Information. "Confidential Information" means [Confidentiality Scope], and includes the terms of this Agreement.
9.2 This obligation shall not apply to information that:
- is or becomes publicly known other than as a result of a breach of this clause;
- is required to be disclosed by law, court order, or any regulatory authority;
- is disclosed to the disclosing party's professional advisers who are bound by a duty of confidentiality; or
- was lawfully in the receiving party's possession before disclosure under this Agreement.
9.3 Nothing in this clause shall prevent any Party from making a protected disclosure within the meaning of section 43A of the Employment Rights Act 1996.
10. GENERAL PROVISIONS
10.1 Entire Agreement. This Agreement (together with any documents referred to herein) constitutes the entire agreement between the Parties relating to its subject matter and supersedes all previous agreements, understandings, and arrangements between the Parties, whether oral or written.
10.2 Variation. No variation of this Agreement shall be effective unless made in writing and signed by all Parties.
10.3 Severability. If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the remaining provisions shall remain in full force and effect.
10.4 Waiver. No failure or delay by any Party in exercising any right under this Agreement shall operate as a waiver of that right.
10.5 Third Party Rights. No person who is not a party to this Agreement shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.
10.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute a duplicate original, but all of which together shall constitute one agreement.
10.7 Further Assurance. Each Party shall, at its own cost, do all things necessary to give effect to the provisions of this Agreement, including procuring the amendment of the Articles to the extent necessary.
11. DISPUTE RESOLUTION
11.1 Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by [Dispute Resolution].
12. GOVERNING LAW AND JURISDICTION
12.1 This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the laws of England and Wales.
IN WITNESS WHEREOF, the Parties have executed this Shareholders' Agreement as of the Effective Date first written above.
SHAREHOLDER 1
Name: [Shareholder 1 Name]
Address: [Shareholder 1 Address]
SHAREHOLDER 2
Name: [Shareholder 2 Name]
Address: [Shareholder 2 Address]
SIGNED for and on behalf of [Company Name]
Shareholder 1
________________
Signature
Date: ________________
Shareholder 2
________________
Signature
Date: ________________
Company
________________
Signature
Date: ________________
What Is a Shareholders' Agreement (UK)?
A Shareholders' Agreement in the United Kingdom governs the relationship between shareholders and the company and the terms on which equity is held, issued, or transferred, with its requirements set by the Companies Act 2006.
Under English law, a shareholders' agreement is a binding contract governed by common law principles of contract. It is entered into voluntarily by the shareholders and typically also by the company itself (to confirm the company is bound by the obligations it contains). Unlike the articles of association, which are a public document filed at Companies House and constitute a statutory contract under section 33 of the Companies Act 2006, a shareholders' agreement is a private and confidential document. This means that the commercial terms agreed between the shareholders (such as dividend policies, reserved matters, and leaver provisions) are not visible to competitors, creditors, or the general public.
The relationship between a shareholders' agreement and the articles of association is a critical aspect of UK company law. Where the two documents conflict, the shareholders' agreement prevails as between the parties to it, but the articles remain the constitutional document of the company and bind the company and all of its members, including any future shareholders who join after the agreement was signed. For this reason, a well-drafted shareholders' agreement will typically include an obligation on the parties to procure that the articles are amended to the extent necessary to give effect to the agreement, and will include a provision that any new shareholder must accede to the shareholders' agreement as a condition of acquiring shares.
The legal framework governing the Shareholders' Agreement (UK) in United Kingdom draws on several key statutes and regulatory bodies. Under the Companies Act 2006, Companies House maintains the register of UK companies. Section 386 of the Companies Act 2006 sets accounting record obligations. The Competition and Markets Authority (CMA) enforces the Consumer Rights Act 2015. The Financial Conduct Authority (FCA) regulates financial services under the Financial Services and Markets Act 2000. The High Court of Justice has jurisdiction under the Senior Courts Act 1981. Parties executing a Shareholders' Agreement (UK) in United Kingdom should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Companies Act 2006 sets the foundational requirements.
When Do You Need a Shareholders' Agreement (UK)?
A Shareholders' Agreement is appropriate whenever a private company incorporated in England and Wales has two or more shareholders who wish to define their respective rights and obligations in a way that goes beyond the default provisions of the Companies Act 2006 and the articles of association. It is particularly important in the following circumstances.
Firstly, where two or more individuals are founding a company together. The agreement establishes clear rules from the outset about decision-making, shareholdings, roles and responsibilities, and what happens if the relationship breaks down. Without a shareholders' agreement, disputes between co-founders can be difficult and expensive to resolve, potentially requiring a winding-up petition under section 122(1)(g) of the Insolvency Act 1986 on the grounds that it is 'just and equitable' to do so.
Secondly, where external investment is being introduced. Venture capital firms, angel investors, and private equity investors will almost always require a shareholders' agreement (often called an investment agreement) that protects their investment through anti-dilution provisions, information rights, board representation, consent rights over reserved matters, and defined exit mechanisms including drag-along and tag-along rights.
Thirdly, where shareholders are also directors or employees of the company. Good leaver and bad leaver provisions confirm that if a shareholder leaves the company (voluntarily or involuntarily), there is a clear mechanism for determining the price at which their shares must be transferred. Without such provisions, a departing shareholder could refuse to sell their shares or demand an inflated price, creating a deadlock.
Fourthly, in 50/50 joint ventures or where no single shareholder has a majority. Deadlock resolution mechanisms (such as mediation, expert determination, or a buy-sell mechanism) are essential to prevent the company from being paralysed by disagreement between equal shareholders. The landmark case of Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 illustrates the difficulties that can arise in quasi-partnership companies without adequate governance provisions.
What to Include in Your Shareholders' Agreement (UK)
A well-drafted Shareholders' Agreement for a company incorporated in England and Wales should contain several essential provisions that work together to create a thorough governance framework.
The share capital clause records the current shareholdings of each shareholder and provides the basis for proportional rights throughout the agreement. It should specify the number and class of shares held by each shareholder and the percentage of the total issued share capital they represent.
The board composition clause defines the structure of the board of directors, including the total number of directors, the right of each shareholder to appoint (and remove) directors, quorum requirements for board meetings, and voting procedures. This is particularly important where shareholders want to confirm they have representation at board level proportionate to their investment.
The reserved matters clause is one of the most critical provisions. It lists specific decisions that cannot be taken by the board alone and require the prior written consent of all (or a specified majority of) shareholders. This gives minority shareholders veto power over major decisions that could affect the value of their investment.
The share transfer restrictions govern how and when shareholders can sell their shares. Pre-emption rights require a selling shareholder to offer their shares to the existing shareholders before selling to a third party. Tag-along rights protect minority shareholders by allowing them to join a majority shareholder's sale on the same terms. Drag-along rights protect majority shareholders by allowing them to force minorities to sell their shares as part of a complete exit.
The deadlock resolution mechanism is essential for companies with equal shareholders. Common mechanisms include escalation to senior representatives, mediation under the Centre for Effective Dispute Resolution (CEDR) rules, expert determination, and buy-sell (Russian roulette) provisions.
Good leaver and bad leaver provisions define the price at which a departing shareholder must sell their shares, depending on the circumstances of their departure. The confidentiality clause protects commercially sensitive information. The governing law clause should specify the laws of England and Wales.
Additional compliance elements for a Shareholders' Agreement (UK) used in United Kingdom include: Under the Companies Act 2006, Companies House maintains the register of UK companies. Section 386 of the Companies Act 2006 sets accounting record obligations. The Competition and Markets Authority (CMA) enforces the Consumer Rights Act 2015. The Financial Conduct Authority (FCA) regulates financial services under the Financial Services and Markets Act 2000. The High Court of Justice has jurisdiction under the Senior Courts Act 1981. Forms-legal.com provides this template as a starting point for United Kingdom-compliant documentation.
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"Shareholders' Agreement (UK) (United Kingdom)." Forms Legal, 2026, https://forms-legal.com/uk/business/corporate/shareholders-agreement-uk.
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title = {Shareholders' Agreement (UK) (United Kingdom)},
year = {2026},
howpublished = {\url{https://forms-legal.com/uk/business/corporate/shareholders-agreement-uk}},
note = {Free legal document template. Based on Companies Act 2006}
}Also available for these jurisdictions:
Frequently Asked Questions
A shareholders' agreement and articles of association serve complementary but distinct purposes under English law. The articles of association are the company's constitutional document, required by section 18 of the Companies Act 2006, and operate as a statutory contract between the company and its members (section 33). They are a public document, filed at Companies House and available for anyone to inspect. A shareholders' agreement, by contrast, is a private contract between the shareholders (and usually the company), which is not filed at Companies House and is confidential. The shareholders' agreement typically contains provisions that go beyond those in the articles, such as reserved matters requiring shareholder consent, tag-along and drag-along rights, good/bad leaver provisions, dividend policies, and deadlock resolution mechanisms. In the event of a conflict between the two documents, the shareholders' agreement will prevail as between the parties to it, but the articles remain binding as a statutory contract on the company and all members, including future members who were not party to the shareholders' agreement.
Yes, both tag-along and drag-along rights are enforceable under English law when properly drafted in a shareholders' agreement. Tag-along rights protect minority shareholders by allowing them to sell their shares on the same terms as a majority shareholder who is selling to a third party. Drag-along rights protect majority shareholders by enabling them to compel minority shareholders to sell their shares as part of a full exit. These rights are not provided by the Companies Act 2006 and must be contractually agreed. For enforceability, drag-along clauses typically include a power of attorney provision allowing the company (or the majority shareholder) to execute the share transfer on behalf of the minority shareholder if the minority shareholder fails to comply. English courts have upheld such provisions, provided they are exercised in good faith and the minority shareholders receive the same price and terms as the majority shareholders.
Reserved matters are specific decisions that require the prior approval of the shareholders (either unanimously or by a specified majority), rather than being left to the discretion of the board of directors alone. They are one of the most important protections for minority shareholders in a private company. Common reserved matters include: issuing new shares or varying share rights, amending the articles of association, changing the nature of the company's business, entering into material contracts above a specified value, appointing or removing directors, declaring dividends, approving annual budgets, creating charges over company assets, making loans or granting guarantees, acquiring or disposing of material assets, and passing a resolution to wind up the company. The Companies Act 2006 already requires certain matters to be approved by shareholders (such as changes to the articles under section 21, which requires a special resolution of 75%), but a shareholders' agreement can impose additional consent requirements beyond those required by statute.
A Bushell v Faith clause derives from the House of Lords decision in Bushell v Faith [1970] AC 1099. Under section 168 of the Companies Act 2006, shareholders have the right to remove a director by ordinary resolution (a simple majority of votes cast). A Bushell v Faith clause counteracts this by giving a director who is also a shareholder enhanced voting rights on any resolution to remove them from the board. For example, if a director holds 100 shares, the clause might provide that each of those shares carries 3 votes on a resolution to remove that director, effectively making it impossible for the other shareholders to achieve a majority. The House of Lords held that such a clause does not contravene the statutory right of removal because section 168 does not regulate the number of votes that may be attached to shares. Bushell v Faith clauses are only relevant to private companies and are typically included in the articles of association rather than the shareholders' agreement, though the shareholders' agreement may contain a covenant requiring the shareholders to maintain such a provision in the articles.
Good leaver and bad leaver provisions are contractual mechanisms used in shareholders' agreements to regulate what happens to a shareholder's shares when they leave the company (typically because they were also a director or employee). A 'good leaver' is a shareholder who departs in circumstances beyond their control or fault, such as death, permanent incapacity, redundancy, or termination of employment by the company without cause. A good leaver is typically entitled to sell their shares at fair market value, determined by an independent valuer. A 'bad leaver' is a shareholder who departs in circumstances involving fault or breach, such as gross misconduct, material breach of the shareholders' agreement, conviction of a criminal offence, voluntary resignation within a specified period, or disqualification as a director. A bad leaver is typically required to sell their shares at a discounted price, often the lower of the nominal value and the original subscription price. These provisions must be carefully drafted to confirm they are not treated as a penalty under English law (following Cavendish Square Holding BV v Makdessi [2015] UKSC 67) and should clearly define the circumstances that constitute each category.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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