Glossary · UK
What is Shareholders' Agreement?
A private contract between a company’s shareholders setting out how the company will be run and how disputes and share transfers are handled.
Full Definition
A shareholders' agreement is a private contract entered into between some or all of a company's shareholders (and often the company itself) that sits alongside, and typically goes beyond, the articles of association. While the articles of association are a public document filed at Companies House and govern the company generally, a shareholders' agreement is confidential and can cover matters the founders may not want disclosed publicly, such as valuation methods for shares, drag-along and tag-along rights on a sale, pre-emption rights on new share issues, deadlock-resolution mechanisms, reserved matters requiring unanimous or supermajority consent, dividend policy, and what happens if a shareholder dies, becomes incapacitated, or wants to leave (a "good leaver / bad leaver" clause). It is particularly important for small or family-owned companies and start-ups with more than one founder, since it can prevent disputes escalating into expensive litigation or a forced winding-up petition, and it is commonly required by external investors such as venture capital or private equity funds as a condition of investment. Unlike the articles of association, a shareholders' agreement does not need to be filed at Companies House and can only be changed with the consent of the parties bound by it.