Shareholders agreement for a lifestyle business that will never sell

Most shareholders' agreements are written as if the company will one day be sold, and most companies never are. A business the owners intend to run for income, until they retire or hand it on, needs an agreement about income rather than exit: how profits are shared, how the owners' work is paid for, what happens when one steps back or retires, how the business passes to the next generation or the next owners, and what happens on death. It also needs, despite the title, a sale clause, because plans change. For a fixed fee of £995, delivered in five working days, I draft the agreement for the owners jointly, beginning with a briefing session and ending with a note on how the articles need to work with it.

Who this is for

Owners in England and Wales of professional practices, trades, agencies, shops and service businesses that pay their owners well and are not built for sale, who want the agreement between them to reflect how the business will be run.

What matters in a shareholders' agreement for a lifestyle business

What changes when there is no exit

An agreement written for a sale sets vesting, drag-along and leaver provisions around a transaction; an agreement for a business that will not be sold sets them around income and continuity: the owners' return is dividends and pay rather than a capital gain, a departing owner is bought out from the business's cash flow rather than from a buyer's price, and the valuation for any transfer is an income multiple the owners can fund rather than a market price nobody will pay. The agreement should say that the business is run for its owners' income and that the provisions are drafted on that footing, which changes the dividend policy, the leaver terms and the exit mechanisms.

Income, dividends and the business's cash

The agreement should set a dividend policy that distributes a high proportion of profits after a stated retention, within section 830 of the Companies Act 2006, the process for setting the working owners' salaries, the owners' expectations about the balance between pay and dividends (reviewed with the accountants), and the financial controls that make the policy credible (monthly accounts, dual authorisation, no drawings outside the policy); in a lifestyle business the dividend policy is the deal, and the agreement should state it in terms the owners can check against the accounts.

Work, time and stepping back

The agreement should record what each owner does and the time they commit, how the money changes if an owner reduces their hours or stops working while keeping their shares (a lower salary, the same dividends, or a reduced shareholding over time), whether an owner may step back without selling, and how the remaining owners are compensated for carrying the work; a lifestyle business tolerates an owner who steps back only if the agreement says what they are paid for, and the usual answer is pay for work and dividends for ownership, with the shareholding adjusted where the imbalance is permanent.

Succession, retirement and the next owners

The agreement should provide for an owner's retirement at a stated age or on notice, with their shares bought by the remaining owners, the company under section 690 of the Companies Act 2006, or a successor the owners approve (a family member, a senior employee, a management team) at an income-based valuation paid over a period from profits, and should provide for new owners to be brought in by subscription or transfer at that valuation, with vesting where they buy in over time; a business that cannot pay out a retiring owner from its own cash flow has no succession plan, and the valuation and payment terms should be tested against the accounts.

Death and the surviving owners

On an owner's death the agreement should provide for the shares to be bought by the surviving owners or the company at the stated valuation, funded by life cover under a cross option arrangement where the owners choose, so that the family receives the value and the survivors keep the business, with business property relief under the Inheritance Tax Act 1984 preserved by the option structure rather than a binding sale; the owners' wills should be consistent with the agreement, and section 33 of the Companies Act 2006 makes the articles binding on every shareholder, which is why the note on the articles lists the transfer provisions they must carry.

The sale the owners said would never happen

Plans change, and the agreement should contain the sale provisions the owners would want if an offer arrived: a decision threshold, drag-along with the usual protections, tag-along, and the treatment of a shareholder who leaves before an unplanned sale, drafted at the width a lifestyle business needs rather than a start-up's; it should also say what happens if the business declines, the owners' obligations under the Insolvency Act 1986 if it cannot pay its debts, and the orderly closure of a business the owners have decided to stop, with the assets sold, the staff dealt with and the proceeds distributed.

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

We are never going to sell. Why do we need an agreement at all?

Because the questions a sale would settle (what each of you is paid, what happens when one steps back, how a retiring owner is bought out, what happens on death) still have to be answered, and in a business that is not sold they are answered from the company's own cash. The agreement sets the policy and the valuation.

How do we value a business that will never be sold?

By an income multiple the owners can fund from profits over a period, agreed in the agreement and reviewed annually, rather than a market price nobody will pay. The valuation is for buying each other out, not for a sale.

My co-owner wants to retire in three years. What does the agreement do?

It provides for the retirement, the valuation and the payment over time from profits, and for a successor if there is one. Without it, the retiring owner keeps the shares and the dividends while doing no work, or sells to whoever will buy.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement for a company planning to sell within five years
• Cross option agreement and life insurance for shareholders

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.