Shareholders agreement when converting a partnership to a company

Partners who incorporate swap a relationship governed by partnership law and their partnership agreement for one governed by company law, the articles and a shareholders' agreement, and the swap changes things they may not have noticed: how decisions are taken, how profits reach them, what happens when one retires, and who is liable for what. The agreement has to carry across what the partners valued in their partnership, record how capital and profit shares become shares and loans, and deal with the transfer of the business itself. I draft that agreement for the partners 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; the transfer documents and the tax advice are separate.

Who this is for

Partners in England and Wales in professional practices, trades and businesses incorporating their partnership into a limited company, whether for tax, for limited liability or because a lender or customer requires it.

What matters when partners become shareholders

What the partners lose and gain by incorporating

In a partnership every partner is an agent of the firm with unlimited personal liability for its debts, decisions are taken by majority in ordinary matters under section 24 of the Partnership Act 1890 unless the partnership agreement says otherwise, and the partnership can be dissolved by any partner on notice under section 26 unless the agreement provides a term; in a company the shareholders are liable only for their shares, decisions are taken by the directors and by shareholder resolutions at the thresholds the Companies Act 2006 sets, and nobody can leave with their capital without a buyer. The agreement should carry across the partnership's rules where the partners want them and replace them where company law requires.

Capital accounts, profit shares and how they become shares and loans

Each partner's capital account becomes shares, a loan to the company, or a mixture, and the profit-sharing ratio becomes the shareholding ratio or a dividend policy that reproduces it; the agreement should record the conversion for each partner, state the terms of any shareholder loans (interest, repayment, subordination to the bank), and set the dividend policy within section 830 of the Companies Act 2006 and the pay process for the partners who now work as directors under service agreements, because partners used to drawing against profits will find that a company pays salary through PAYE and dividends only from profits available.

Decisions by partners and decisions by directors

Partners took decisions together; in the company the directors manage and the shareholders decide only what the articles and the Act reserve to them, so the agreement should list the matters the former partners want to keep deciding together as reserved matters, set the board (usually all the partners at first, with a mechanism for a smaller board later), and provide a deadlock mechanism where the partnership had equal partners; it should also address the removal of a director under section 168 of the Act, which partners who could not expel each other should understand.

Retirement and admission of partners

A retiring partner was paid out their capital account under the partnership agreement; a retiring shareholder must sell their shares, and the agreement, with matching articles, should provide the compulsory transfer, the valuation (usually reproducing the partnership agreement's basis for a retiring partner, or a fresh formula), payment over time, and the good and bad leaver distinctions the partners want; a new partner used to buy in to the partnership, and the agreement should provide for a new shareholder to subscribe for shares or buy from the others at a stated valuation, with the admission a reserved matter.

The partnership's assets, contracts and the transfer

The business is transferred to the company by a business transfer agreement, with the partners' consent to the assignment of contracts, leases and licences obtained, the staff transferring under the Transfer of Undertakings (Protection of Employment) Regulations 2006, the partnership's VAT registration transferred or a new one obtained, and the bank, the insurers and the customers told; the agreement should record what has been transferred, what remains with the partners (a property kept outside the company and leased to it, for instance), and the partners' indemnities to each other for partnership liabilities that surface after incorporation. The transfer documents are a separate matter.

The tax and the advice the conversion needs

Incorporation can be structured so that the gain on the transfer of the business is deferred under section 162 of the Taxation of Chargeable Gains Act 1992, with alternatives the partners' accountants will weigh against the partners' circumstances, the treatment of goodwill, stamp duty on any property, and the partners' future extraction of profits; the agreement records the structure the accountants recommend and is drafted to accommodate it, and the note on the articles addresses the share classes and transfer provisions the structure needs under section 33 of the Companies Act 2006. Tax advice is outside the drafting.

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 had equal profit shares as partners. Should we have equal shares in the company?

Usually, with the dividend policy reproducing the profit share, unless capital contributions differed, in which case shareholder loans can carry the difference. The agreement records whichever the partners choose with the accountants.

In our partnership a retiring partner was paid out over three years. Can the company do the same?

It can, through compulsory transfer provisions with a valuation and payment by instalments, supported by the articles. The agreement reproduces the partnership's basis where the partners want it.

Do we need a new partnership agreement as well?

Not once the business is in the company. The partnership agreement is replaced by the shareholders' agreement and the articles, and should be ended in the business transfer documents.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Shareholders agreement for a consultancy owned by its consultants
• Shareholders agreement versus articles of association

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.