Shareholders agreement with a passive investor

A passive investor holds a stake in a company that other people run and wants three things: not to be diluted or disadvantaged without their agreement, to know what is happening, and to get their money back when the company is sold. The founders want the investor's money without the investor in the building. The agreement sets a short list of matters the investor must consent to, the information they receive, the return they can expect, and the exit, and it leaves the running of the company where it belongs. I draft that agreement for the founders and the investor 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 taking money from an investor who will not be involved in the business, and investors, from a wealthy individual to a family office, who want their position protected without managing the company.

What matters in a passive investor shareholders' agreement

What a passive investor is entitled to

A shareholder's rights under the Companies Act 2006 and the articles are limited: to vote at general meetings, to receive the accounts, to a dividend if one is declared, to pre-emption on new shares under section 561 unless disapplied, and to petition for relief from unfair prejudice under section 994; a passive investor's protection comes from the agreement, which should give them the rights they need to protect value without the rights they do not want to exercise, and should say that the investor has no obligation to contribute further, no role in management and no liability for the company's debts beyond their shares.

The short list of consent matters

The agreement should list the matters that need the investor's consent, confined to what could damage their investment: issuing shares or options other than under an agreed plan, changing the articles or the share rights, selling the company or its business, borrowing or granting security above a limit, changing the nature of the business, transactions with the founders or their connected persons, and founder remuneration above a stated level; everything else is for the board, and the agreement should say that the investor's consent is not to be unreasonably withheld on matters in the ordinary course where the founders want that comfort.

Information rights and the investor's confidentiality

The investor should receive annual accounts, management accounts at stated intervals, the annual budget, and notice of material events (litigation, loss of a major customer, insolvency risk, an approach from a buyer), and the agreement should impose confidentiality on the investor with the usual exceptions, prohibit use of the information for competing purposes, and address an investor who holds stakes in competitors; an investor with information and no role is the arrangement the agreement describes, and the information is what makes it work.

Dividends, returns and the investor's patience

The agreement should set a dividend policy (a stated proportion of distributable profits after retaining what the business needs, decided by the board within the policy), say whether the investor's shares rank equally with the founders' or carry a preference (which affects tax reliefs the investor may want and should be checked with their advisers), and state what the investor can expect by way of return and when; an investor who was promised dividends in conversation and received none has a grievance the agreement should have prevented.

A board seat, an observer or neither

A passive investor may want a seat on the board, an observer right (attendance and papers without a vote), or neither, and the agreement should say which, with the director's duties under the Companies Act 2006 explained to an investor who takes a seat, because a director owes duties to the company that may conflict with the investor's own interest, and section 175 on conflicts applies; an observer right gives the information without the duties and is often the better fit for an investor who intends to stay passive.

Exit, tag-along and the investor's way out

The agreement should give the investor tag-along so that the founders cannot sell control without the investor being bought out on the same terms, drag-along so that a sale the founders accept at or above a minimum price takes the investor with it, a right to participate in future rounds to maintain their percentage, and, where the parties agree, a put option under which the investor can require the founders or the company to buy their shares at a stated valuation after a stated period, so that the investor is not locked in indefinitely; the note on the articles addresses the transfer provisions 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

Does a passive investor have to be consulted on hiring and spending?

Not under the agreement, which confines the investor's consent to the matters that could damage the investment. Day-to-day management is the founders', and the investor receives information rather than a say.

Should the investor join the board?

Only if they want a director's duties as well as a say. An observer right gives the papers and the meetings without the duties, and suits most investors who intend to stay passive.

How does the investor get their money out if the company is never sold?

Through dividends under the policy, or a put option at a stated valuation after a stated period if the founders agree one. Without either, a minority stake in a private company is hard to sell, and the agreement should say so.

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

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.