When two or more people start a company together, it is easy to focus on the opportunity and avoid discussing what could go wrong. Everyone agrees on the vision, shares the risk, and expects the business to succeed. But as companies grow, circumstances change. Disagreements happen. Partners leave. New investors come in. One person may want to take money out while another wants to reinvest. Without a shareholder agreement in place, these decisions become messy, emotional, and potentially expensive. In this blog, we explain what a shareholder agreement is, who needs one, what it should cover, and how AFG helps clients put agreements in place that protect both relationships and businesses.
A shareholder agreement is a private contract between the shareholders of a company. It sets out how the company will be run, how major decisions will be made, and what happens if a shareholder wants to leave, sell their shares, or passes away. It is separate from the company’s articles of association, which are a public legal document filed at Companies House. While the articles provide the basic rules, the shareholder agreement adds detail and flexibility. It is not legally required, but it is widely considered essential for any company with more than one shareholder.
Without a shareholder agreement, decisions are governed by default company law and the articles of association, which often do not cover real-life situations in enough detail. For example, what happens if one shareholder wants to exit? Can they sell their shares to anyone? Do other shareholders get first refusal? What if one person stops contributing to the business but keeps their equity? These are not theoretical problems—they are common ones. A well-drafted agreement makes it clear what the process is, who has rights to what, and how decisions are made. It protects both the business and the relationships behind it.
Any company with more than one shareholder should have an agreement. This includes startups with two co-founders, family businesses, and more established companies with external investors. The earlier the agreement is created, the better. Ideally, it should be put in place at the point of company formation or before any shares are issued. However, it can still be added later, as long as all parties agree. We often help clients put agreements in place when:
A new shareholder joins the business
An investor is providing funding in exchange for equity
A family business wants to formalise roles and responsibilities
Shareholders want clarity before scaling or exiting
The contents of a shareholder agreement vary depending on the nature of the business, but certain areas are almost always addressed. These include:
How decisions are made and what requires unanimous consent
What happens if a shareholder wants to sell their shares
How shares are valued in the event of a buyout or exit
What happens if a shareholder dies or becomes incapacitated
How disputes between shareholders will be resolved
Whether non-compete or confidentiality clauses apply
Rights to dividends, voting, and appointment of directors
It may also include specific clauses for minority protection, drag-along and tag-along rights, funding obligations, and restrictions on external share sales.
A key purpose of a shareholder agreement is to protect minority shareholders from being sidelined and to protect majority shareholders from being blocked on essential decisions. For example, a minority shareholder might want the right to be included in any share sale negotiations (tag-along rights). A majority shareholder may want the power to force through a sale under specific conditions (drag-along rights). Without these clauses, transactions can stall and create tension. By agreeing upfront how these situations will be handled, you avoid uncertainty later.
Disagreements happen, even among long-standing partners. A good shareholder agreement sets out a fair and practical method for resolving them. This might include mediation, arbitration, or buy-sell clauses that allow one party to exit under agreed terms. It is far easier to agree on dispute processes when things are calm than to negotiate during conflict. At AFG, we have seen first-hand how the absence of an agreement can delay resolutions, disrupt operations, and damage the value of the business.
If you are raising funding or taking on a strategic investor, they will likely insist on a shareholder agreement. This protects their interests and outlines what involvement they will have in the business. It may include board seats, reserved matters that require their consent, or terms that affect how and when they can exit. If you do not already have an agreement in place, the investor will likely present one. This puts you in a weaker negotiating position. Having your own agreement shows professionalism, sets expectations, and can speed up the investment process.
One of the biggest mistakes small businesses make is thinking that a shareholder agreement is only needed for large or complex companies. Another is downloading a generic template online that does not reflect the real dynamics of the business. Templates often miss critical areas or include clauses that conflict with your articles of association. We also see agreements that are written once and never revisited, even after the company grows, raises funds, or changes direction. An outdated agreement can be just as risky as having no agreement at all. Your shareholder agreement should reflect how your business operates today, not how it looked on day one.
At Allied Financial Group, we work with business owners and directors to ensure their shareholder agreements are clear, practical, and aligned with their business goals. We start by reviewing your company’s current structure, ownership, and growth plans. Then we help draft or update an agreement that reflects how you want the business to operate. This includes working with your solicitor where necessary, explaining key clauses, and ensuring it aligns with your articles of association. If your company is growing, taking on new shareholders, or formalising its governance for the first time, we make sure the process is smooth, collaborative, and forward thinking.
You hope never to need your shareholder agreement. But when you do, it matters. It can mean the difference between a smooth transition and a legal battle, a friendly buyout and a dispute, a business that runs well and one that stalls. For most businesses, the cost of putting a good agreement in place is small compared to the cost of resolving problems without one. At AFG, we see the shareholder agreement not as a legal formality, but as a key part of building a resilient, well-run business. If you have shareholders, you should have an agreement. And if your agreement has not been updated in years, now is the time to take another look.
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