What is a shareholders' agreement?

When a limited company is set up with more than one shareholder — whether co-founders or outside investors — the question of how the relationship between those shareholders is governed becomes important. A shareholders' agreement is the primary legal document that addresses this, and understanding what it covers and why it matters is relevant for any founder setting up a company with others.

A shareholders' agreement is a private contract between the shareholders of a company that sets out the terms of their relationship and how the company will be governed. It typically covers how decisions are made, what happens if a shareholder wants to sell their shares, what protections minority shareholders have, how disputes are resolved, and what happens if a founder leaves the business. Unlike the articles of association, a shareholders' agreement is not filed at Companies House and remains confidential.

A shareholders' agreement is not a legal requirement, but operating without one is a significant risk for any multi-shareholder company. Disputes between co-founders or shareholders are one of the most common causes of early-stage business failure, and the absence of a written agreement makes them much harder to resolve. Our guide to shareholders' agreements for UK founders explains what should be included and when to put one in place.