Running a business is rarely straightforward – especially when you’re balancing the needs of multiple stakeholders: family members, partners, employees, customers, suppliers, lenders, banks, and of course, shareholders.

The Problem with Unclear Shareholder Arrangements (or none at all!)

One common challenge arises when shareholder relationships change over time. A majority shareholder (often the founder) may find themselves dealing with a minority shareholder who is no longer involved in the business but now wants to sell their shares.

Without clear rules in place, this can create real risk:

  • Shares could be sold to external parties—or worse, to a competitor.

  • The business may be unable to control or limit who owns a stake.

  • There may be no agreed method for valuing the shares.

Ideally, the company would buy back the shares or offer them to existing shareholders first. But then comes the next hurdle: what is a fair price?

Minority shareholdings are typically subject to a discount – due to their lack of control and limited marketability – even if the shareholder originally paid full price. Disputes can quickly arise between:

  • A minority shareholder demanding a high price.

  • A company or majority shareholder unwilling to overpay.

  • A lack of agreement on valuation principles.

In the worst cases, a single disgruntled shareholder can disrupt the business – or even block a sale – holding the company to ransom.

The Solution: A Shareholders Agreement

A well-drafted Shareholders Agreement can prevent much of this conflict by setting out clear rules and expectations from the outset. Key benefits include:

✅ Clear Governance

Define what decisions Shareholders or Directors can make independently—and which ones require joint approval. This might include:

  • Placing large orders

  • Hiring senior staff

  • Appointing Directors

  • Approving major strategy changes

✅ Rules for Selling Shares

Ensure everyone knows:

  • How a shareholder can sell their shares

  • To whom shares can be sold (e.g. requiring existing shareholders be offered first)

  • Whether external sales need prior approval

✅ Share Valuation Process

Set a clear method for valuing shares in different scenarios. For example:

  • Should minority holdings be discounted?

  • Should the valuation be carried out by the company accountant or an independent expert?

✅ Sale and Merger Protections

Include rights such as:

  • Drag-along rights – allowing majority shareholders to force a sale to a third party, ensuring no one can block the deal.

  • Tag-along rights – protecting minority shareholders by allowing them to join in on a sale.

✅ Dealing with Departing Shareholders

Manage “bad leavers”, such as employees who leave to start a rival business, by adjusting how their shares are valued or treated.

✅ Avoiding Disputes

Prevent misunderstandings and disputes by agreeing key terms while relationships are still strong and everyone’s intentions are aligned.

In Summary

A Shareholders Agreement brings structure, fairness, and clarity to your business, helping you avoid costly disputes and maintain control over the future of your company.

And it’s one less problem to deal with—especially when you already have so many stakeholders to manage.

Need Help?

For more information about:

  • Creating a Shareholders Agreement

  • Selling a Business

  • Share Valuation Services

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