Shareholders agreement: what to settle before you need it

A shareholders agreement is a private contract between the owners of a company setting out how they will run it together and what happens when they stop wanting to. The company’s articles cover the constitutional basics and are a public document; the agreement covers the awkward specifics and is not. It is signed when relations are good, and read for the first time when they are not — which is the whole design brief.

Companies that skip it are rarely being careless. They are two or three people who trust each other, and drafting a document about future disputes feels like an accusation. The cost of that comfort arrives years later, when a co-owner wants to leave, dies, divorces or simply stops turning up, and nothing on paper says what their shares are worth or who may buy them.

The clauses that earn the document

• Leaver provisions: what happens to shares when someone stops working in the business, and whether the price differs for a good leaver and a bad one. This is the clause disputes turn on more than any other.
• Transfer restrictions and pre-emption: existing shareholders get the first chance to buy before shares can go to an outsider, and on what terms.
• Valuation method. Not a number — a method, with a named independent valuer and who pays for the valuation.
• Reserved matters: the decisions that need unanimity or a supermajority rather than a simple board vote, such as taking on debt, issuing shares, selling the business or changing what it does.
• Deadlock resolution for evenly split ownership, since a 50/50 company with no mechanism is a company that stops functioning the moment the two owners disagree.
• Drag-along and tag-along: majority owners can compel a minority to join a sale, and a minority can insist on joining one at the same price.
• Dividend policy, or at least the principle for deciding one — an owner who works elsewhere and one who draws a salary from the company want opposite answers.
• Non-compete and confidentiality after exit, kept narrow enough to be enforceable.

Fifty-fifty is the case to plan for

Equal ownership between two people is the most common structure and the most fragile. Every deadlock is permanent unless the agreement provides an exit: an independent chair with a casting vote, a compulsory buy-sell where one names a price and the other chooses whether to buy or sell at it, mediation before litigation, or a defined wind-down. Without one, the disagreement simply persists, and the practical outcome is that the company does nothing while both owners take advice.

The version to sign is the one where each owner has honestly asked what the clause does to them if they are the one leaving badly. An agreement drafted entirely from the perspective of whoever is still there is the kind that gets challenged.

How it sits with the articles

The articles of association are filed and public; the shareholders agreement is private and binds only its signatories. Where they conflict, the position gets complicated quickly, so the two are drafted together and the agreement usually requires the parties to amend the articles where needed. Anything that must bind a future shareholder who has not signed — share transfer mechanics in particular — generally belongs in the articles rather than the agreement alone. This is the part where template documents most often fail: the template covers the agreement and says nothing about aligning the constitution behind it.

Signing it and keeping it findable

The agreement is signed by every shareholder and by the company, and it is amended whenever the ownership changes — a new investor signs a deed of adherence rather than being added informally. Ettex Signature collects the signatures from owners in different places without a printing round, Ettex Docs holds the drafts and the version history so the executed text is distinguishable from a marked-up one, and the cap table, the deeds of adherence and the leaver record belong in Ettex Records where the next person to ask can actually find them. Related documents like a partnership agreement template answer a different structure entirely and are not a substitute.

Plainly: none of that is legal advice, and a shareholders agreement is not a document to assemble from a template and sign. The clauses interact, the leaver and valuation provisions in particular, and the money at stake later is orders of magnitude larger than the cost of having it drafted properly once.