Shareholders Agreement – 50:50 shareholding

What is a shareholders agreement (50:50 shareholding) and when should you use it?

A Shareholders’ Agreement is a legally binding contract between the shareholders of a company.

It governs the relationship between the shareholders in order to protect the interests of the individual shareholders as and against each other.

A Shareholders’ Agreement is of crucial importance in any company where there is more than one shareholder.

It provides a level of protection for the shareholders involved in the company and establishes a fair relationship between them.

This Shareholders’ Agreement – 50:50 shareholding template is specifically drafted for companies where there are two shareholders, each holding 50% of the shares.

There are no minority or majority shareholders.

Therefore there is no bias in the Agreement toward one particular kind of shareholder.

It sets out the rights and obligations of the shareholders, regulates the appointment of directors, as well as how decisions are made by the directors.

It also constrains shareholders powers so that certain actions can only be taken with the consent of both shareholders.

In the event of disagreement this Agreement also contains a specific clause, called a deadlock clause, which determines how disagreements on key issues are to be resolved.

This is extremely helpful in companies where two shareholders equally own 50% shares in the company.

A Deadlock Clause can help the shareholders reach an agreement by providing a mechanism for the resolution of the problem.

You should use this Shareholders Agreement if:

• Both shareholders each hold 50% of the shares in your company
• You have recently incorporated or have been established for some time
• You would like to lay down the rules between the shareholders of your company
• You want to detail your rights, obligations and liabilities
• You want to protect your interests
• You want to detail what happens if there is disagreement between the shareholders
• You want to detail what happens if one of the shareholders dies or leaves for any reason

Please note that under Company law being a shareholder does not confer the right to be a director so a provision in this regard has been included in this Shareholders’ Agreement.

If you’re looking for a shareholders agreement to protect a minority shareholder you should check out our minority shareholders agreement template

If you are looking for a shareholders agreement for multiple shareholders then you should check out our multiple shareholders agreement 

You can read our guide to shareholders agreements here

We’ve also got a useful checklist to help you when drafting your shareholders agreement.

Why have a formal agreement?

Shareholders agreements are used because even the smallest business must operate under the same company rules as much larger ones.

In many instances a small, limited company is often more like a partnership than a quoted company.

Using a shareholders’ agreement allows the best of both worlds.

The company can be run as if there were a partnership with the advantages of limited liability and any other reasons behind forming a company in this way in the first place.

What is normally in the agreement? 

• Who is to work in the company and on what basis – all the shareholders will usually be entitled to be directors?
• A list of matters which cannot change unless all the shareholders agree
• How to retire in a way that gives the others a chance of buying the retiring shareholders shares

Once you’ve got a shareholder agreement in place, then, when you’re bringing on board further shareholders (provided that you’re doing so on the same terms) they will not need to sign the shareholder agreement itself.

Instead, they can simply sign a deed of adherence to it, which is a simpler document but that binds them, and you, to the same terms as the original shareholder agreement.

You can use our deed of adherence for these purposes.

There is one already attached to this template agreement at Schedule 4.

It is important that when drafting your shareholders agreement you also consider it in conjunction with a director’s service agreement or contract of employment.

This gives both the company, and the shareholders further safeguards.

You can find our director’s service agreement here

Updated 25 February 2024