Q&A with Josh Williams, Lucy Bidwill and Caleb Williams: Key Terms in Shareholders’ Agreements

Clear, well‑structured shareholders’ agreements are vital to preventing deadlocks, disputes and costly misunderstandings - yet many companies still operate without them. In this Q&A, Josh Williams, Partner, Lucy Bidwill, Senior Associate and Caleb Williams, Solicitor from Anderson Lloyd outline the core clauses every agreement should contain, the common problems that arise when those clauses are missing, and the practical challenges around mechanisms like tag‑along and drag‑along rights. They also share the key mistake first‑time shareholders make, and the one piece of advice they should hear before signing.

 

1. How shares can be bought and sold, and any restrictions on a sale.

2. The terms of issue of shares.

3. How shares are valued, including in a scenario where a shareholder is in default, has died or is incapacitated

4. Including the decision-making powers of directors and setting out on what basis any decisions require approval of shareholders.

5. Dispute resolution mechanisms, including for deadlock.

6. Non-compete and confidentiality provisions to protect the business.

7. Strategic plans and budgets.


What are the most common issues you see when shareholders do not have an agreement in place, and how do those disputes usually start?

Common issues which arise when shareholders have not entered into a shareholders' agreement include:

1. When there is a deadlock in decision making, notably for 50/50 shareholding structures, examples include deciding whether to reinvest profits or issue distributions, carry out large operational expenditures, or decide on the strategic future of the company.

2. Deciding on the future of the company where one shareholder wants to exit, stop being actively involved in the business, or dies / is incapacitated.

3. Where shareholders have contributed unevenly or where one shareholder has provided a shareholder loan and they have not documented how shareholders will be recompensated.

4. There is a relationship breakdown between shareholders.


Tag along and drag along rights can be crucial. Can you talk through when they are most useful, and what practical issues can come up when they are triggered?

Tag-along rights protect minority shareholders by ensuring they can exit when the majority exits and drag-along rights protect the majority shareholder by making it possible to sell 100% of the business without being blocked by a minority shareholder. Practical issues which can arise include:

1. The vendors generally wants all shareholders to be liable for any breach of the vendor warranties, whereas the dragged and tag shareholders will resist this.

2. The agreed commercial terms with a prospective purchaser do not align with the terms of the drag or tag provisions in the shareholders' agreement, requiring an amendment to the shareholders agreement, which provides the dragged or tag shareholder with further bargaining power.

3. Dragged or tag shareholders may be required to release any securities over their shares as a completion deliverable, which may be difficult to obtain, notably in a drag scenario.


If you could give one practical tip to shareholders entering an agreement for the first time, what would it be, and what is the most common mistake you see people make?

Shareholders should be clear with each other on their expectations of the company and be aligned on the key terms of the business instead of leaving it to be agreed at a later date. A common mistake is shareholders not addressing the uncomfortable topics in the shareholders' agreement and agreeing what will happen when things do not go acting to plan, for example, a relationship break down or deadlock decisions.

It is also important to plan for and be upfront about exit scenarios; what happens if something goes wrong, who will exit, and on what terms. Addressing these issues early reduces conflict and provides certainty for all shareholders