A shareholders’ agreement is a private contract between some or all of a company’s shareholders, often with the company as a party, that sets out how the company will be run and what happens to shares when people leave, fall out or sell. Unlike the articles, it is not normally filed at Companies House, binds only those who sign it and usually needs everyone’s consent to change. The key clauses cover decisions that need shareholder consent, board seats, share transfers, leavers, deadlock and exit.

How does a shareholders’ agreement differ from the articles?

Every company must have articles of association (section 18 of the Companies Act 2006). A limited company that registers none, or registers articles that do not exclude them, gets the model articles by default (section 20). The articles are part of the company’s constitution, and section 33 makes them binding on the company and every member as if each had covenanted to observe them. A shareholders’ agreement sits alongside them.

Articles of association Shareholders’ agreement
Required by law Yes No
Public Yes, on the register at Companies House Normally private
Who is bound The company and every member, present and future Only the parties who sign or later adhere
How it changes Special resolution, 75% of votes (sections 21 and 283) Whatever the agreement says, usually all parties
Filing a change Amended articles within 15 days (section 26) Usually none

The unanimity point is often the main reason for having one. A holder with 20% cannot stop the others changing the articles, but cannot be outvoted on a contract that requires their signature to amend.

What does a shareholders’ agreement usually cover?

  • Consent rights. A list of decisions the board cannot take without the consent of a set majority of shareholders, or of a named investor: issuing shares, borrowing above a limit, selling the business, changing the nature of the trade, paying dividends outside policy, appointing senior staff.
  • Board composition. Rights for particular holders to appoint and remove a director, or an observer.
  • Information rights. Monthly management accounts, budgets and access to records, going beyond the statutory rights described in shareholder rights.
  • Share transfers. Lock ins, permitted transfers to family or trusts, and first refusal for the other holders, which the Act does not provide on transfers; see pre emption rights.
  • Exit. Drag along and tag along rights on a sale.
  • Leavers. Compulsory transfer of a departing employee shareholder’s shares, with “good leaver” and “bad leaver” prices.
  • Deadlock. What happens when two equal holders cannot agree: escalation, mediation, a “shotgun” buy sell clause, or a winding up as a last resort.
  • Restrictive covenants. Non compete and non solicitation promises by shareholders, which are personal obligations better suited to a contract.
  • Funding and dividends. Whether holders must put in further money, and the dividend policy.

Does a shareholders’ agreement ever have to be filed?

Usually not, but there is a trap. Section 29(1)(b) brings into the company’s constitution any resolution or agreement agreed to by all the members that would otherwise only have been effective as a special resolution. Section 30 then requires a copy to be sent to Companies House within 15 days, and failure is an offence by the company and every officer in default. An agreement signed by every shareholder that, for example, varies the articles or disapplies pre emption rights can therefore become a public document. Drafters often keep such changes out of the agreement and pass a separate special resolution instead. See filing resolutions at Companies House.

What can a shareholders’ agreement not do?

Some statutory powers cannot be contracted away by the company. Section 168 lets the members remove a director by ordinary resolution “notwithstanding anything in any agreement between it and him”. A promise by the company that a director will stay in office does not stop that. Appointment rights are therefore usually backed by undertakings among the shareholders themselves about how they will vote, with the company kept out of those particular promises.

The agreement also cannot bind someone who never signed it. Every new shareholder, whether by allotment or transfer, should sign a deed of adherence, and the articles often make that a condition of registering a transfer.

Which clauses have tax consequences?

Inheritance tax. Business Relief is denied on shares that are subject to a binding contract for sale (section 113 of the Inheritance Tax Act 1984). HMRC’s manuals at IHTM25292 and SVM111120 explain that a “buy and sell” clause, under which a deceased holder’s personal representatives must sell and the survivors must buy, is such a contract and prevents relief. Clauses giving the survivors an option to buy, or requiring the personal representatives to offer the shares where nobody is obliged to buy, are not contracts for sale and do not affect relief. Most well drafted agreements therefore use cross options. See inheritance tax Business Relief.

Employee shareholders. Under section 423 of the Income Tax (Earnings and Pensions) Act 2003, employment related shares are restricted securities where a provision, such as a leaver clause forcing a sale for less than market value, makes them worth less than they would otherwise be. That changes how their value is measured for income tax and may call for a section 431 election when the shares are acquired.

People with significant control. Rights in a shareholders’ agreement can make a holder a PSC even with a small stake. The statutory guidance on significant influence or control says that absolute veto rights over running the business, such as adopting or amending the business plan or appointing the chief executive, are likely to amount to significant influence or control. Vetoes held to protect a minority, such as over changes to the constitution, dilution or winding up, are unlikely on their own to do so. See persons with significant control.

What happens if the agreement and the articles conflict?

Between the parties, the agreement normally says that it prevails and that each shareholder will vote to amend the articles to remove any inconsistency. That works only between signatories. A third party, or a member who never signed, relies on the articles, and the company itself acts under its articles. If a transfer procedure in the articles differs from the agreement, directors registering a transfer will follow the articles. The cure is to keep the two documents aligned, updating the articles whenever the agreement changes a point that also appears in them.

How does this look in practice?

Illustration only. Three founders hold 40%, 40% and 20%, and an angel investor subscribes for new shares. The agreement provides that:

  • borrowing over £50,000, issuing shares and selling the business need the consent of holders of 75% plus the investor;
  • each founder holding at least 20% can appoint one director;
  • a founder who leaves within three years must offer their shares at nominal value if a bad leaver, or market value if a good leaver;
  • if the two 40% holders deadlock on a reserved matter for 30 days, either can serve a buy sell notice naming a price at which the other must either buy or sell.

The transfer and leaver provisions are repeated in the articles so they bind any later holder, while the covenants and the investor’s consent rights stay in the private agreement.

What are the common mistakes?

  • Issuing shares to a new investor or employee without a deed of adherence.
  • Letting the articles and the agreement drift apart after amendments.
  • Including a mandatory buy and sell clause on death that removes Business Relief.
  • Signing a unanimous agreement that varies the constitution and not filing it within 15 days.
  • Giving an investor broad vetoes without checking whether they become a PSC.
  • Relying on a company promise to keep a director in office despite section 168.

Where relations break down entirely and the agreement offers no exit, a minority may need an unfair prejudice petition.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.