Do I need a shareholder agreement? 

19th October 2022 / Sally Marshall / No Comments

A business relationship contract will help manage and regulate the relationship between the owners of a business. As well as recording some formal information, this agreement sets out the rules of engagement between the parties, what each expects from the other, what should happen in certain circumstances e.g., bankruptcy, death, breach of contract, rules regarding duties and protection from other parties around share ownership and the sale of the business. A shareholder agreement can provide a process and a mechanism to solve disputes that may arise between the parties or help provide an answer in the event of certain scenarios e.g., illness, death or retirement. These solutions can provide a much cheaper and quicker result than leaving things to chance. Ideally this is drawn up by a solicitor with experience of these areas but if you are not able to invest in that, at least record the information below, which might be persuasive if you do end up in dispute at any time in the future.  

 Full details of the parties, including their names, addresses and the amount of the business they are going to own, e.g. how big a share they will have/will the parties be equal?  As long as all the parties agree, we can act for all of you in drafting a contract.  However, if you disagree with each other or fall out during the process, we would not be able to act for any of you.  If you decide to operate through a limited company, we could act for the company itself. It is up to the individual shareholders then whether they wish to take separate legal advice.  How much money will each owner put into the business?  Will any other property (e.g. premises, cars, inventions, equipment) be transferred to the business? If so, what and by whom? Is a value being attributed to that?   
 Full description of the activities of the business, e.g. vehicle component manufacturer, internet software company, retail?  What do you do/supply?  Who are your customers?   
 When would you like the arrangements to start?   
 Are there any other things that need to happen before you start these arrangements?   
 Who will be the main representatives of the business?  All the parties or just some of them?  What will each person’s role be?  Do you intend that all owners devote their full time and attention to the business?  Do you want to be able to nominate other people to represent you in the business if you are unable to?  Do you want to have separate employment contracts for those owners who are also working for the business?  Do you want to stipulate how much holiday and other benefits each person is entitled to E.g. maternity leave, sick pay, health cover, insurance, car, other expenses? Will all the owners have the same level of responsibility for running the business?  Do you want to set the rules now for what should happen if someone else joins as an owner of the business?   
 Who will make day-to-day decisions about the running of the business?  Will there be a chairman with a casting vote?  Do all owners have to be involved in all decisions?  How should decisions be made?  Simple majority? / Unanimity?  NB  Below is a list of decisions that we would normally recommend are reserved for everyone’s approval. Please tick all that should apply consider if there is anything personal to you that should be added to that list.   
 Do you want to include provisions for what should happen if you can’t agree between yourselves what should happen both in relation to day-to-day decisions and anything else about which you need everyone to agree?  -  Terminate the business.  -  Force someone to sell their share/s in the business.   
 How often do you want to hold meetings?  -  Every week?  -  Month?  -  Every 3 months?  Do all owners have to be present at all meetings or just the main representatives?   
 How much notice to you want to give/be given of meetings?   
 Do you want to state that a minimum number need to be present at a meeting (a quorum)?   
 Should there be separate meetings for the owners who are not also working full time?   
 How will the company be financed?  -  Now?  -  In the future?   
 Have you got a business plan?  Do you want to include this within the agreement?  
 Do you have accountants?  If so, please supply details.  Do you have a bank account? If so, please supply details. Who will sign cheques?   Is there a financial limit to decisions that can be made by some rather than all of the owners?   
 Do you want to set the rules now for how and when profits should be distributed?    Will the owners of the business receive a monthly sum?   
 Do you want to be able to stop an owner from transferring their interest to someone else?  Will they be able to do this with your consent?   
 Do you want any other circumstances to force an owner to transfer their share and, if so, to whom?  Shapee.g. Death/critical illness ShapeLeaving as an employee ShapeBreaching the agreement  (tick all that should apply)   If they have to transfer their shares, what will they get paid for them?  ShapeFace value; or ShapeFair value.  NB  If someone leaves for dismissal or breach, it is reasonable to agree they should only get face (par) value.  If they leave on “good” terms (e.g. resign, retire or die), it is usually agreed they will get fair current value.  Please indicate what arrangements you would want to apply.   
 Do you want all parties to agree not to compete with the company and should this apply after they have left the business?  If so, for how long?   

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  Adopting or amending the business plan. 
  Closing the business. 
 Changing the nature of the business or starting any new business which is not ancillary or incidental to the business 
  Selling the business. 
 ShapeMaking an acquisition or disposal by the business of any asset(s) worth more than £ 
 Entering into a contract worth more than £  
  Creating or granting any encumbrance, charge or security. 
 ShapeBorrowing money in excess of £                            or giving a guarantee. 
  Permitting the registration of anyone as a member of the business. 
  Removing an officer. 
  Altering the name of the business. 
  Altering the business’s constitution or rights attaching to ownership. 
  Allowing new participants. 
  Merging the business. 
Do you already have an exit strategy? Do you want to stipulate when owners must retire from the business?   

Signed ………………………………………………….. 

By ………………………………………………….. (Name) 

………………………………………………….. (Address)  

All parties should sign the document 

For more information, see or contact Aly at

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