Most UK SMEs with more than one shareholder never put a shareholders’ agreement in place. Without one, the Companies Act and model articles decide what happens — and the defaults are poor. Shares pass to the deceased’s family under their Will, so you can end up in business with a bereaved spouse who has no interest in the trade while they hold an unsellable minority stake. A 50/50 company can deadlock entirely, with court as the only remedy. Nobody is obliged to buy a departing owner out, or to sell.
A good agreement covers death and incapacity (usually a cross-option agreement funded by life cover in trust — an option structure, because a binding buy-and-sell can jeopardise Business Relief), an agreed valuation method, pre-emption rights, good leaver and bad leaver terms, a deadlock mechanism, reserved matters, dividend policy, restrictive covenants, and drag-along and tag-along rights.
Critically, it has to match your Will. If the agreement says the survivors buy your shares, your Will cannot leave them elsewhere. And with Business Relief capped at £2.5 million combined from April 2026, larger holdings need the tax planned in advance.
The agreement costs a modest one-off fee. A shareholder dispute costs five or six figures and a year of trading.