Shareholders' Agreement FAQs for UK Founders
If you run a UK limited company with co‑founders, these are the questions you should be asking before you sign anything. This page covers the most common issues founders raise about shareholders' agreements, deadlock, leavers and "do we really need this?". It's written for straightforward founder teams, not complex investor deals or restructuring.
Do we really need an agreement?
Do we really need a shareholders' agreement if we already have standard articles?
Yes, if there is more than one shareholder. The model articles are a basic rulebook, but they don't deal with the real flashpoints between founders: deadlock, exits, leavers, valuation, or what happens on death or dispute. A shareholders' agreement fills those gaps and lets you set your own rules in a private contract. For most founder teams, the articles and a good shareholders' agreement work together – they are not either/or.
Can we just rely on being friends or family and deal with problems if they come up?
You can, but that is exactly how most shareholder disputes start. While things are going well, everyone assumes they will stay aligned forever. The problems usually arrive later – when someone wants to leave, needs to de‑risk personally, gets divorced, or stops pulling their weight. A shareholders' agreement is there to preserve the relationship by deciding the hard stuff in advance, while you can still talk to each other like adults.
What's the risk of just using any generic shareholders' agreement template I find online?
Generic templates are rarely written for your cap table, your sector or UK law, and they almost never line up with your articles or future plans. The big risk isn't a minor drafting quirk, it is that you lock in unfair or unworkable rules on exits, valuation or investor rights that only bite once there is serious money or conflict at stake. By the time you discover the problem, it is usually far more expensive to fix than getting the right document in the first place.
What happens if things go wrong?
What happens if we are 50/50 shareholders and we disagree on a big decision?
In a straight 50/50 company, neither of you can force through an ordinary resolution on your own, so a serious disagreement can effectively deadlock the business. That can block decisions on funding, hiring, paying dividends or even selling the company. A well‑drafted shareholders' agreement builds in a deadlock mechanism – usually an escalation process, then mediation, and as a last resort some form of buy‑out or exit route – so you have a way to move on without going straight to court.
Can I force a difficult or unresponsive shareholder to sell their shares?
Not in general, unless you already have a contract that allows it. Company law gives you some remedies for extreme situations, but it does not give you a simple 'kick them out' button because you have fallen out. That is why many shareholders' agreements include compulsory transfer clauses, good/bad leaver provisions and 'events of default' that allow the other shareholders to force a sale at an agreed valuation when certain behaviour crosses the line.
What happens to a shareholder's shares if they die, divorce, or lose capacity?
Without an agreement, their shares usually pass under their will or intestacy rules and may end up owned by a spouse, ex‑spouse or family member who has no involvement in the business. That can freeze decisions and make exits very hard. A shareholders' agreement can require shares to be offered back to the remaining shareholders, or bought using insurance‑backed cross‑option or buy‑back arrangements, so control stays with the people actually running the company while the family receives value.
How are shares valued if a founder leaves the business?
If you don't agree a valuation mechanism upfront, it quickly becomes one of the most expensive parts of any exit dispute. Typical shareholders' agreements either fix a formula – for example, based on profit or an agreed multiple – or appoint an independent accountant to certify 'fair value' as an expert, under clear rules on discounts and assumptions. The key is not to chase the perfect formula, but to agree some fair, workable rules now while everyone is still broadly aligned.
What's the difference between a good leaver and a bad leaver?
A good leaver is someone who leaves on agreed, relatively benign terms – such as illness, death, retirement, or a mutually agreed departure. They usually get full or fair value for their shares. A bad leaver is someone who leaves in difficult circumstances – gross misconduct, joining a competitor, or serious breach of the agreement – and they may have to sell at a discount or even at what they originally paid. Those definitions and price rules should be spelt out clearly so no one is surprised later.
What happens on death or serious illness?
What is a cross-option agreement, in plain English?
A cross-option agreement is a short contract that sits alongside your shareholders' agreement and spells out what happens to the shares if a shareholder dies or becomes critically ill. It normally gives the surviving shareholders the right to buy the deceased's shares at an agreed value, and gives the estate the right to require that buy-out on the same terms. The idea is simple: instead of the family inheriting an illiquid stake they can't use, they receive cash; instead of you inheriting a new co-owner who never chose the role, you keep control of the business.
Why isn't a shareholders' agreement on its own enough if a founder dies?
A shareholders' agreement can set rules between the shareholders while they are alive, but it doesn't stop the deceased's shares passing under their will or the intestacy rules. In practice, that often means a spouse or children inherit a blocking stake in the company, with full voting and dividend rights but no involvement in the day-to-day business. Without a cross-option and some form of life cover, there may be no right, and no funding, to buy those shares back – so you can end up in deadlock with someone who never chose to be your co-owner.
How does life insurance fit into a cross-option?
In a typical founder setup, each shareholder is covered by a life policy written in trust. If one of you dies, the policy pays out to that trust rather than directly to the company. The cross-option agreement then allows that money to be used to buy the deceased's shares from their estate at the agreed price. The family gets the cash from the policy; the surviving founders acquire the shares; and the company's balance sheet isn't suddenly drained to fund an emergency buy-out.
Is this template the right tool?
Can we use this template if we plan to raise investment in the future?
You can use a founder‑level agreement now, but you should assume it will need to be replaced or heavily amended when you bring in serious investors. Institutional investors and sophisticated angels will expect their own terms on things like preference shares, veto rights and exit. The template and quiz are designed for simple founder teams with ordinary shares and no external investors. Once you have a term sheet, you are firmly in bespoke‑advice territory.
Is this template suitable if one of the shareholders is a company or a trust?
No. This particular template is designed for two to four individual founder‑shareholders, all holding one class of ordinary shares directly. As soon as you introduce corporate or trust shareholders, the tax, control and regulatory issues become more complex and often need tailored drafting. In those cases, you should be looking at a bespoke shareholders' agreement and aligned advice, not a founder‑only template.
Do all founders have to be directors, or can someone be a shareholder only?
They don't all have to be directors. Someone can just be a shareholder, just a director, or both. What matters is that your paperwork matches reality: the shareholders' agreement, articles and any directors' service agreements should make it clear who sits on the board, who has information rights, and what happens to someone's shares if they step down from the board or from employment. That avoids arguments later about 'shadow' roles and expectations.
How do I know if I need a solicitor instead of a template?
As a rule of thumb, a template is only appropriate for a simple UK company with a small number of individual founders, one class of ordinary shares and no live disputes or external investors. If you already have, or expect soon to have, institutional investment, multiple share classes, serious shareholder tension, cross‑border elements, complex tax planning, or any shareholder is a company, LLP or trust (for example a holding company or family trust), you are beyond template territory. At that point, paying for bespoke advice is genuinely cheaper than trying to unwind a bad agreement later.
If your answers are throwing up red flags, start with the quick quiz on our Founders & Shares page. If that suggests you're beyond template territory, speak to your own solicitor, or, if you don't already have one, you can reach out to our friends at Bonsai Law for a bespoke agreement.
Ready to get your shareholders' agreement sorted?
Our plain-English shareholders' agreement pack includes everything you need – SHA template, cross-option agreement, deed of adherence and how-to guides.
See the Shareholders' Agreement Pack