How to review a shareholders' agreement under English law

A shareholders' agreement sits alongside a company's articles of association and governs how the owners run the company, put in money, and leave. In England and Wales the two documents work together, and most problems come from a gap or a conflict between them. This checklist covers the clauses to check in a private limited company shareholders' agreement and shows how to redline it in Word with LexDraft.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Before you start

• Read the articles first. The articles are filed at Companies House and are public. Under section 33 of the Companies Act 2006 they bind the company and its members. The shareholders' agreement is a private contract that binds only the people who sign it. Check that the two documents say the same thing on share transfers, board appointments and consent rights, and that the agreement says it prevails between the parties if they conflict.
• Know who is a party. If the company signs, remember that a company cannot validly agree not to exercise its statutory powers, such as altering its articles (Russell v Northern Bank Development Corporation [1992]). Shareholders can still agree among themselves how they will vote. Check for a clause that limits the company's obligations accordingly.
• Know the cap table. Share classes, option pools and any convertible instruments change how the consent thresholds work.

Clause checklist

• Reserved matters. The list of decisions that need investor or unanimous shareholder consent is usually the most negotiated part. Check the threshold (majority, special majority, named investor) and whether ordinary trading decisions are caught by accident.
• Board composition. Rights to appoint and remove directors, quorum and casting votes. Shareholders can always remove a director by ordinary resolution under section 168 of the Companies Act 2006, so weighted voting rights in the articles are the usual way to protect a founder director. Since 18 November 2025 new directors must have verified their identity with Companies House before they are appointed.
• Issuing new shares. Check the directors' authority to allot (sections 550 and 551) and the statutory pre-emption rights on allotment in section 561, which a private company can disapply in its articles or by special resolution. Make sure the agreement and the articles take the same approach.
• Share transfers. Pre-emption on transfer, permitted transfers (to family trusts or group companies), lock-ins and any prohibition on transfers to competitors.
• Drag-along and tag-along. Check the drag threshold, whether minority holders get the same price and terms, and the limits on warranties and indemnities that dragged holders must give.
• Leaver provisions. Good and bad leaver definitions, the price for each, and how fair value is set. Compulsory transfer clauses at a reduced price were held to be primary obligations rather than penalties in Cavendish Square Holding BV v Makdessi [2015], but they still need careful drafting and a clear commercial reason.
• Restrictive covenants. Non-compete and non-solicit covenants on shareholders must be reasonable to be enforceable. Courts give more latitude to covenants given by shareholders and sellers than to employees, but duration and scope still matter.
• Funding and dividends. Any obligation to provide further funding, and the dividend policy, should be stated plainly.
• Information rights. Monthly accounts, budgets and access for investors.
• Deadlock. Particularly in 50:50 companies. Options include escalation, mediation, a buy-sell mechanism (the "Russian roulette" or "Texas shoot-out"), or a winding up as a last resort.
• Minority protection. Even without express rights, a minority can petition for unfair prejudice under section 994 of the Companies Act 2006. Clear exit routes reduce the risk of that kind of dispute.
• Exit. Rights on a sale or listing, and any obligation to co-operate.
• Execution and stamp duty. Consider whether the agreement should be executed as a deed. Transfers of shares on a stock transfer form generally attract stamp duty at 0.5%, with an exemption where the consideration is £1,000 or less.

Review the shareholders' agreement in Word with LexDraft

1. Open the shareholders' agreement in Word, open LexDraft from the Home tab and set the jurisdiction chip to UK: England & Wales (or UK: Scotland or UK: Northern Ireland if that is the governing law).
2. Run the quick checks. They are rule-based and run without AI, catching undefined or unused defined terms, broken cross-references, numbering gaps and inconsistent capitalisation.
3. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated shareholders' agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
4. Accept or reject each proposed redline. Accepted edits land as native Word tracked changes, ready for the other side.
5. Ask the Assistant to explain a clause in plain English or suggest wording for your side. Answers use UK spelling.
6. Look up any case you want to rely on in the Case law tab, then open the judgment on Find Case Law and read it yourself. UK judgments in LexDraft come from The National Archives' Find Case Law service, which only partially represents the activities of the courts and tribunals. Not every judgment or decision is included. Find Case Law does not include judgments from Scottish or Northern Irish courts or tribunals.

LexDraft does not give legal advice and does not summarise judgments. AI output can be wrong, so qualified counsel must check every redline before it goes out.

Common mistakes

• Updating the agreement but not the articles, so a transfer restriction is unenforceable against a new shareholder who never signed.
• A reserved matters list so wide that the board cannot run the business.
• Leaver definitions that do not match the founder's service agreement.
• Using "Shares", "Ordinary Shares" and "Equity Securities" for the same thing. The defined-term check catches this.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. LexDraft is not affiliated with or endorsed by The National Archives or any court. Spotted something out of date? Email support@lexdraft.ai and we will fix it.