Shareholders agreement for a friends and family investment round

Money from friends and family is the cheapest and the most expensive capital a founder raises: cheap because it comes on trust, expensive because the trust is the relationship and the paperwork is what protects it. The agreement has to make clear what the investors are getting, keep the founders in control of a company that now has a dozen small shareholders, give the investors enough information to feel treated properly, and set up the next round so that the family round does not get in its way. The invitation itself is regulated, and the agreement comes after the founders have dealt with that. I draft the agreement for the founders and the investors together, with a briefing session and a note on how it fits the articles, for a fixed fee of £995, delivered in five working days.

Who this is for

Founders in England and Wales raising a first round from friends, family and personal contacts, and the people investing, who want the arrangement documented so that it survives both the business's success and its failure.

What matters in a friends and family round shareholders' agreement

The rules on inviting friends to invest

An invitation to invest is a financial promotion restricted by section 21 of the Financial Services and Markets Act 2000 even when made to friends, unless an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 applies, and a private company may not offer its shares to the public under section 755 of the Companies Act 2006, though an offer to existing members, employees and their families, or one not calculated to reach others, is outside the prohibition; the founders should take advice on the exemptions before approaching anyone, keep the round private and personal, and document each investor's basis for the exemption, because the agreement cannot cure a promotion that should not have been made.

Shares, loans and what the family is getting

The agreement should state whether each investor receives ordinary shares at a stated price, a convertible loan that turns into shares at the next round, or a plain loan with interest, and should spell out the consequences in plain terms: a shareholder owns part of the company and is paid only if it pays dividends or is sold, a lender is owed money whether or not the company succeeds but has no share in the upside; family investors often do not know which they have been offered, and the agreement should leave no doubt, with the issue mechanics under the Companies Act 2006 (authority to allot under section 551, pre-emption under section 561) followed for shares.

Keeping the founders in control with many small shareholders

A dozen small shareholders can make a company unmanageable if each has the rights of a founder, so the agreement should give the investors collectively a short list of consent matters (new shares, changing the articles, selling the business), exercised by a majority of the investor shares or by an investor representative, rather than individual vetoes, should keep the board with the founders, should contain drag-along at a threshold so that a sale is not blocked by one relative, and should provide a power of attorney for transfers under the drag; it should also say that the investors have no role in management and no claim to be consulted beyond the agreement.

Information and the relationships at stake

Family investors need to be told how the business is going before they hear it at a family event, and the agreement should give them annual accounts, a short periodic update and notice of material events, with confidentiality obligations, and should set the expectations about returns in writing: no dividends until the company is profitable and the board decides, no right to repayment of a share subscription, and a realistic statement that the investment may be lost; a founder who has written that down has protected the relationship from the business's failure.

Tax reliefs for the investors

Many friends and family investors can claim relief under the Seed Enterprise Investment Scheme or the Enterprise Investment Scheme in Parts 5A and 5 of the Income Tax Act 2007 if the company and the shares qualify, which requires ordinary shares without preferential rights, limits on connection with the company (relatives of the founders are not disqualified by the relationship alone, though the rules on connected persons and employees apply), and a holding period; the agreement should be drafted so that the shares qualify where the parties intend to claim, convertible loans should be structured with the reliefs in mind because a loan is not a qualifying investment until it converts, and the company's accountants should obtain advance assurance.

The next round, dilution and the exit

The agreement should say that the investors accept dilution in future rounds, that their pre-emption rights are waived or exercisable within the round's timetable, that the agreement will be replaced by the investment documents of a professional round, and that the investors will sign what that requires (a deed of adherence, a waiver), because a seed investor who cannot get the family round's shareholders to sign is a seed investor who walks away; tag-along protects the family if the founders sell control, and the note on the articles addresses the changes needed under section 33 of the Companies Act 2006.

What it costs

Shareholders agreement, £995. An agreement between the shareholders of a private company, with a note on how it interacts with your articles. Five working days.

Buying online forms the engagement on payment. The scope is what the shareholders agreement page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A briefing session with all shareholders together, to work through the questions people avoid asking each other
• A shareholders agreement drafted for your actual situation rather than a precedent with the names changed
• A note on how the agreement interacts with your articles, and whether the articles need amending to make it work
• A plain English explanation of every material choice, so nobody signs something they have not understood
• One round of amendments
• Signature-ready documents

What is not included

• Acting for individual shareholders separately, because I act for you jointly
• Company valuation
• Tax structuring, which needs your accountant and should run alongside this
• Amended articles of association and IP assignments, which I quote separately
• Filing at Companies House
• Resolving a dispute that has already started

Questions I am often asked

Can we just email our contacts asking them to invest?

Not without checking the financial promotion rules first: the restriction applies to friends as well as strangers, and the exemptions have conditions. Take that advice before the email; the agreement documents what follows.

Should the family get shares or a loan?

It depends what each side wants: shares share the upside and the risk, a loan is owed regardless but caps the return, a convertible loan defers the question to the next round. The agreement makes the choice explicit for each investor so that nobody misunderstands what they have.

How do we stop twelve relatives blocking a sale?

Drag-along at a threshold the founders can reach, with a power of attorney for the transfers, and consent matters exercised by the investors collectively rather than individually. The agreement contains both.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement when bringing in an angel investor
• Shareholders agreement with a passive investor

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.