How does a shareholders’ agreement work?


A group of colleagues and I are forming a new limited by shares company, and one of them has recommended that we organise a shareholders’ agreement as part of our Companies House application. Apparently this type of agreement will protect all shareholders as individuals. Yet I am curious as to how it does that. Could you advise how a shareholders’ agreement actually works in practice?



A shareholders’ agreement is a private document that is drawn up by shareholders to protect their individual rights and stipulate how decisions should be made in certain circumstances. It is definitely a good idea if your company has more than one shareholder because it will provide clarity and far greater protection of each shareholder’s rights than the articles of association.

You can include anything you like in the shareholders’ agreement, provided all shareholders are accepting of its terms and provisions. Most agreements cover matters relating the the appointment and removal of directors, the extent of director's’ decision-making powers, the procedures for issuing and transferring shares, key decisions that require a majority or unanimous vote of the shareholders, and a framework for resolving disputes between shareholders or within other areas of the business.

2 years ago

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