Shareholders' agreement

A private contract between the owners of a company about how they will behave towards each other. The most-skipped, most-regretted document in small business.

What it means

A shareholders' agreement is a contract between some or all shareholders, sitting alongside the articles of association. It is private, and it can cover things the articles cannot practically address.

Typical contents: what decisions need unanimity, what happens if a founder leaves, how shares are valued on exit, restrictions on selling to outsiders, dispute resolution, and what happens on death, illness or divorce.

Why it matters

Two people starting a company as friends do not need one. Two people ending a company as former friends need one and cannot make it retrospectively.

Without it, a 50/50 company where the two shareholders disagree is deadlocked, and the remedies available are slow, public and expensive.

What it looks like in practice

The provisions that earn their keep:

Leaver provisions, distinguishing a good leaver from a bad leaver and setting the price for each.

Vesting, so shares are earned over time rather than owned on day one — this alone prevents the classic disaster of a co-founder leaving after four months with half the company.

Drag-along and tag-along, so a minority cannot block a sale and cannot be left behind by one.

A valuation mechanism, agreed in advance while everyone is still reasonable.

What to watch out for

Equal splits with no vesting and no leaver provisions. It is the single most common and most damaging arrangement in early-stage companies.

Leaving it until an investor requires one. At that point you are negotiating between yourselves under someone else's deadline.

Where to get proper advice

A corporate solicitor. Expect a few thousand pounds for a proper one, which is a fraction of the cost of not having it.