Shareholders agreement with employee shareholders

Giving employees shares aligns them with the business and gives the business a new kind of shareholder: one whose holding is tied to a job that can end. The agreement has to connect the shares to the employment without making the two the same thing, decide what an employee keeps when they leave and at what price, keep management with the founders while treating employee shareholders fairly, and deal with the employees' position on a sale. I draft the agreement for the founders and the employee shareholders 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

Companies in England and Wales that have given or are giving shares or options to employees, from a key hire with a stake to a wider scheme, and the employees receiving them, who want the terms clear.

What matters in a shareholders' agreement with employee shareholders

How employees become shareholders and the schemes used

Employees receive shares by direct award, by exercising options, or through a tax-advantaged scheme, of which the Enterprise Management Incentives scheme in Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 is the usual one for small companies, with growth shares and unapproved options as alternatives; the agreement should record how each employee shareholder acquired their shares and under what scheme rules, cross-refer to the option agreement or scheme rules, and provide for the restricted securities election under section 431 of that Act where the company's advisers recommend it. The scheme design and the tax are for the accountants, and the agreement is drafted to fit what they set up.

Leaver provisions and the link to employment

The agreement, with matching articles, should require an employee shareholder who leaves employment to offer their shares to the company or the founders, with good leaver (redundancy, retirement, ill health, death, dismissal other than for cause) and bad leaver (resignation within a period, dismissal for cause, breach of covenants) categories defined, the price for each (fair value for good leavers, the lower of cost and fair value for bad leavers), the valuation method, and payment terms; the categories should be drafted so that a dismissal that is later found unfair does not automatically make the employee a good leaver unless the parties intend it, and the employment contract and the agreement should use the same definitions.

Voting, information and keeping management with the founders

Employee shareholders are usually given shares that carry limited or no votes, or their votes are exercised through a nominee or a power of attorney, so that the founders keep control of resolutions and the company is not run by its staff, and the agreement should say what the employee shares carry, what information employee shareholders receive (annual accounts, notice of a sale) and what they do not (board papers, management accounts), and that they have no consent rights beyond the matters the articles require; the note on the articles addresses the share classes and the voting.

Dividends, valuation and buying back shares

The agreement should set the dividend policy and say whether employee shares participate equally, should provide a valuation method for leaver purchases (an accountant's determination, or a formula tied to the last round or the accounts), and should provide for the company to buy back shares under section 690 of the Companies Act 2006 where it has the distributable profits and the articles permit, or for the founders or an employee benefit trust to buy them; a company that cannot fund a buy-back when an employee leaves should provide for payment in instalments or for the shares to be held pending a sale.

Drag-along and the employee's position on a sale

On a sale, employee shareholders should be dragged along with the founders at the same price per share for their class, and the agreement should contain the drag-along, a power of attorney for the transfers, and the treatment of options (exercise on a sale, or lapse) consistent with the scheme rules; employees should also benefit from tag-along so that the founders cannot sell control without them, and the agreement should say how proceeds are allocated where the shares are of different classes. Employees are not usually asked to give warranties on a sale beyond title to their own shares.

The employment law that sits alongside

Employee shareholders remain employees with their rights under the Employment Rights Act 1996 and the Equality Act 2010, and the agreement cannot affect those; dismissal to trigger bad leaver provisions is still dismissal, and a leaver provision that penalises a protected characteristic or a protected disclosure is unenforceable, so the agreement should be drafted with the employment contracts, the staff handbook and the scheme rules in view and should cross-refer to the service agreements for senior employees. The company's own restrictive covenants and confidentiality in the employment contracts are what protect it when an employee shareholder leaves, and the agreement should not duplicate them inconsistently.

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

An employee shareholder has resigned. Do they keep their shares?

What the leaver provisions say, supported by the articles: usually a bad leaver if they resigned within the stated period, with vested shares bought at the lower of cost and fair value and unvested shares at nominal value. Without the provisions they keep them.

Should employee shares have votes?

Usually not, or the votes are held through a nominee, so that the founders keep control. The agreement and the articles set the class and its rights, and employees receive information rather than votes.

Can we use the agreement to set up the share scheme?

The agreement does not do that. The scheme (EMI, growth shares, options) is set up by the company's accountants and its own documents; the agreement records the employee shareholders' rights and the leaver terms and is drafted to fit the scheme.

Related guidance and services

• Shareholders agreement, £995, the service this page describes
• Employment contracts and handbooks, £595
• Contract review, £495
• Adviser agreement with equity for a startup

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.