Sort the shareholder agreement before you need it. Please.
Every business partnership starts with two people who'd never fall out. I've unwound enough of them to tell you: write the rules while you still mean it.
By Robert Festenstein, Head of Legal
Updated 20 June 2026
7 min read
The short version
- A shareholder agreement is the private rulebook for how owners run things — and how shares change hands when someone wants out, falls out, or dies.
- Your company's articles are public and generic. They won't handle the human stuff.
- Cover decisions, dividends, share transfers, leavers, death and deadlock.
- Do it while relationships are good. Doing it after a fall-out is slow, painful, and sometimes impossible.
What it's really for
A shareholder agreement is a private contract between the owners of a company. Strip away the jargon and it answers one question: what happens when we don't agree?
Because you will disagree eventually. Someone will want to sell. Someone will want to take more money out. Someone will stop pulling their weight, or want to bring in their nephew, or die and leave their shares to a spouse who's never set foot in the building. The agreement is where you decide, calmly and in advance, how each of those plays out.
Why the articles won't save you
Every company has articles of association. People assume they're covered. They're not. The articles are a public, off-the-shelf document that deals with the mechanics of the company — not the realities of a relationship between owners. They won't stop a co-founder selling to someone you can't stand, and they won't tell you what a departing shareholder's stake is worth. A shareholder agreement will, and it stays private.
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What goes in it
- Who decides what. The big calls that need everyone's sign-off, so nobody gets steamrolled — and nothing important slips through on a technicality.
- Money out. How and when profit gets taken.
- Share transfers. Nobody sells to a stranger without offering it to you first.
- Leavers. What happens to the shares of someone who walks — and how they're valued.
- Death and illness. Usually paired with cross-option arrangements and life cover, so the value goes to the family and the shares stay with the business.
- Deadlock. A way out when two owners simply can't agree.
The only bad time to do this
There's exactly one bad moment to write a shareholder agreement: after you've fallen out. At that point every clause becomes a negotiation, every negotiation becomes a fight, and the document that would've taken an afternoon takes months and costs a fortune — if you can agree it at all.
The good moment is now, while everyone's aligned and generous. Pair it with your will so your stake ends up where you actually want it, and you can forget about it for a decade.
Frequently asked questions
Is a shareholder agreement legally binding?
Yes — it's a contract between the shareholders and usually the company, and it binds everyone who signs. That's exactly why it's worth drafting properly; a binding document with woolly terms causes as many arguments as it settles.
We're just two of us and we get on. Do we need one?
Especially then. Two-owner companies are the most exposed to deadlock, and the best partnerships are the ones most worth protecting. Think of it as insurance on a relationship you'd hate to lose.
What happens to someone's shares if they die?
Without planning, they usually pass under the will or the intestacy rules — potentially to someone with no interest in the business. A shareholder agreement, often with a cross-option and life cover, keeps the shares with the business and the value with the family.
Sources & further reading
This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 20 June 2026. Buzz Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).
A solicitor with more than two decades' experience in commercial law, dispute resolution, insolvency and judicial review. Robert acts for businesses, directors and individuals on the matters that carry real consequence — and leads Buzz Solicitors.
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