Do I need a Shareholders’ Agreement?

Posted by on 8 Apr 2025

Thinking of starting a business with others, or already running one without a shareholders’ agreement in place?

Many founders and investors overlook this crucial document — until something goes wrong. A well-drafted shareholders’ agreement isn’t just legal admin; it’s a vital tool for protecting your rights, clarifying responsibilities, and avoiding disputes down the line.

Our latest Legal Lens article from HY Solicitors breaks down what a shareholders’ agreement is, why it matters, and when you should seriously consider getting one.
From the early initiative and the preparatory steps, to investment and holdings and regulating the decision making.

Where a business has multiple shareholders or is looking for equity investment then a Shareholders’ Agreement is advisable.

a. Early initiative: The best time to put a Shareholders Agreement in place is at the start of a venture while all parties are on good terms and should be acting reasonably. Once relationships break down it is very difficult (sometimes impossible) to achieve agreement on an exit or a continuation of the business, which can result in costly legal proceedings.

b. Objectives and preparatory steps: When forming a new company it can assist to include the objectives of the shareholders within a Shareholders’ Agreement, particularly if a party has made promises about the success or otherwise of the venture. Beyond financial investment, sometimes a shareholder may be contributing intellectual property and the agreement can ensure that this is properly transferred to the business or other holding entity or appropriate licencing arrangements are put in place.

c. Investment and holdings: Minority shareholders will expect certain protections such as tag along rights in the event a majority shareholder wishes to sell their shares, and shareholders generally may wish to have rights of pre-emption on share transfers or other restrictions on the transferring of shares. Where investment is being sought, the agreement can set out whether this will comprise debt or equity (or both) and the timing and procedures relating to the same.

d. Regulate decision-making: Decisions on how often board meetings should be held, when and how dividends should be declared and paid and what happens in situations of deadlock can all be made clear. Likewise, it is common for a Shareholders’ Agreement to set out matters which will require unanimous consent of all shareholders. Going back to point a, while an informal approach to decision-making may work while everyone is on good terms, having a set of pre-agreed rules can work wonders if a dispute was to arise.

e. Everything comes to an end

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