Why a Shareholders’ Agreement Matters More Than Ever

19 Feb 2026

By Craig Darling, Partner, Corporate, Gilson Gray

In a benign economic climate, many shareholder issues stay dormant. In today’s environment of rising costs, tighter funding, reduced exits and increased insolvency risk, those same issues are being forced sharply into focus. For UK private limited companies, shareholder disputes are no longer a theoretical risk – they are an operational and value-threatening reality.

At the heart of many of these disputes is a familiar problem: shareholders relying on informal understandings, outdated articles of association or assumptions that no longer reflect commercial reality. This is precisely where a properly drafted shareholders’ agreement becomes essential.

Pressure exposes fault lines

Economic pressure has a habit of exposing underlying tensions between shareholders. Common flashpoints include:

• Cash preservation vs distributions – some shareholders want dividends; others insist on retaining cash to protect the business.
• Funding obligations – disagreements over who should inject further capital, on what terms, and with what dilution.
• Strategic direction – disputes over whether to retrench, sell assets, refinance or pursue a sale in a subdued M&A market.
• Exit expectations – shareholders seeking liquidity in a market where buyers are scarce, and valuations are under pressure.

Without clear contractual rules, these disagreements quickly become personal and entrenched, stalling decision-making at exactly the moment the company needs speed and certainty.

The law is a poor substitute for planning

When disputes escalate, shareholders often fall back on statutory remedies such as unfair prejudice petitions or derivative actions. These are blunt, expensive tools that rarely deliver quick or commercially satisfactory outcomes. Litigation diverts management time, drains cash and can permanently damage the company’s prospects with lenders, investors and counterparties.

In an environment where cash flow and credibility are critical, few businesses can afford years of shareholder litigation. Courts regularly note that many of these disputes arise because the parties failed to agree exit mechanics, control rights or valuation principles when times were good.

What a shareholders’ agreement actually delivers

A shareholders’ agreement is not about planning for failure; it is about preserving value under stress. Commercially, it delivers certainty where uncertainty is most dangerous.

Key protections typically include:

• Clear governance rules – defined reserved matters, board rights and voting thresholds that prevent paralysis or unilateral action.
• Funding mechanics – agreed processes for future capital requirements, including shareholder loans, equity injections and dilution protections.
• Share transfer controls – pre-emption rights, compulsory transfer triggers and valuation mechanisms that avoid fire-sale outcomes.
• Exit routes and deadlock solutions – drag and tag rights, good leaver/bad leaver provisions and structured deadlock mechanisms that provide a way forward when relationships break down.
• Dispute management – escalation and alternative dispute resolution clauses that reduce the risk of public, value-destructive litigation.

Crucially, these provisions are private, bespoke and commercially aligned – unlike articles of association, which are public, generic and often silent on the issues that matter most in a crisis.

Minority protection and majority certainty

In tougher markets, minority shareholders are particularly exposed. Reduced exits and tighter funding can leave minorities locked into illiquid investments with limited influence. A shareholders’ agreement can provide enhanced information rights, vetoes over fundamental changes and realistic exit protections.

Equally, majority shareholders benefit from clarity on control, funding obligations and the ability to execute strategic decisions without obstruction or ambush claims.

Why now?

Many UK private companies are operating with shareholders’ agreements drafted years ago, or none at all. Those documents often assume steady growth, easy refinancing and cooperative relationships. In the current economic climate, those assumptions no longer hold.

A well-structured shareholders’ agreement will not prevent commercial disagreement, but it will prevent disagreement from destroying value. For shareholders looking to protect their investment, maintain control and preserve optionality in uncertain times, it has become an essential risk-management tool rather than a legal afterthought.

To discuss any of the points raised further, please contact a member of our Corporate law team here.