Corporate · 6 min read · 28 August 2026

What a shareholders agreement must contain

Short answer: without a shareholders agreement the Companies Act and your articles decide what happens when the relationship breaks down, and neither was written with your business in mind. Eight provisions do the real work.

1. Deadlock

Two equal shareholders and no tie breaker is the most common failure. Options are a chairman's casting vote, expert determination, escalation to the shareholders personally before any external step, or a shoot out where one side names a price and the other chooses whether to buy or sell at it. Any of them beats the alternative, which is litigation or a winding up petition.

2. What happens on exit

Good leaver and bad leaver definitions decide whether a departing shareholder is bought out at fair value or at par. The definitions matter more than the labels: resignation, dismissal for cause, long term illness and death should each be addressed expressly rather than left to argument at the worst possible moment.

3. How shares are valued

The most litigated gap of all. Specify the basis, whether a minority discount applies, who the valuer is, how they are appointed if the parties cannot agree, and whether the determination binds. Without this the parties argue about the number, and then argue about who gets to decide the number.

4. Pre-emption on transfer

A right of first refusal stops a shareholder selling to someone you would never have gone into business with. It needs a clear trigger, a mechanism and a timetable, otherwise it becomes a delaying tactic rather than a protection.

5. Drag along and tag along

Drag lets a majority require a minority to sell on the same terms when a buyer wants the whole company, which is what makes an exit deliverable. Tag lets a minority join a majority sale rather than being left alongside a new controlling shareholder they did not choose. Most agreements need both.

6. Reserved matters

The decisions requiring unanimity or a supermajority regardless of shareholding: issuing shares, borrowing above a threshold, changing the nature of the business, related party transactions, director remuneration. This is a minority's real protection, and it is worth more than any number of warm assurances given at the outset.

7. Dividend policy

Where profits are extracted as salary by those in management and dividends are never declared, the minority receives nothing. That pattern is a recurring ground for unfair prejudice petitions. An agreed policy removes the argument before it starts.

8. Restrictive covenants and confidentiality

Covenants between shareholders are enforced more readily than employment ones, because the parties are commercial equals and usually have the benefit of a sale. They still have to be reasonable, and the reasoning in restrictive covenant cases applies to them.

What the default gives you instead

No pre-emption unless your articles create one, no obligation on anyone to buy anyone out, no protection for a minority beyond section 994, and no answer to deadlock other than the court. The agreement costs a fraction of the first week of a dispute.

Common questions