What happens when a shareholder wants to leave your business?

Running a business with other people can be incredibly rewarding, but it doesn't always last forever. Sometimes shareholders want to move on – maybe they're retiring, pursuing a different opportunity, or simply ready for a change. When this happens, you need to know exactly what comes next.

The reality is that most business owners haven't thought through what should happen when a shareholder wants to leave. This often leads to messy situations, strained relationships, and sometimes costly legal battles that could have been avoided with proper planning.

Can your shareholders sell to anyone they want?

Here's the big question: can your shareholders sell their shares to absolutely anyone, at any time?

The answer is – it depends, largely on the company’s own rules.  Unless there are restrictions in place your business partner could sell their shares to your biggest competitor, to someone you've never met, or to someone who has completely different ideas about how the business should run.

Most successful businesses put some limits on who can buy shares and under what circumstances. These aren't about being controlling – they're about protecting the business and the remaining shareholders.

The good news is that there is considerable flexibility to adopt rules which work for you, if everyone agrees.  But often owners don’t understand the position until it’s too late.  Do you know the share transfer rules that apply to your business – or where to find them?

Whatever your approach, clarity and consensus is vital.

Different ways to limit share sales

Giving other shareholders first refusal

This is probably the most common approach. When someone wants to sell their shares, the other shareholders get the first opportunity to buy them (sometimes called a pre-emption right). Only if the existing shareholders don't want to buy can the shares be offered to outsiders.

It's straightforward and fair – it keeps ownership within the existing group, when possible, but doesn't trap anyone if the current shareholders aren't interested.

If there’s still nervousness around introducing an unknown shareholder, the external sale could be subject to other conditions or a right of veto.

Requiring permission from the board

Some businesses require board approval before any shares can be sold. This gives the company more control over who becomes a shareholder, which can be important if you need people with specific skills or if the business culture is particularly important to maintain.

The composition of the board of directors may be different from the business owners.  You should consider whether this sort of decision should sit with the directors or the shareholders.

No sales allowed (for now)

Sometimes businesses prevent all share sales completely, either permanently or for a specific period. You might do this during a critical time for the business, like when you're trying to secure a big contract or going through a major transition.

While this might sound harsh, it can be the right approach when keeping the current team together is vital for the business's success.  It means that any transfer will need to be agreed by everyone.

Working out the details

Once you've decided to put restrictions in place, you need to figure out how they'll actually work.

• Setting the price: How much should the shares be worth? You should consider including rules in your articles of association or shareholders' agreement. This may use a professional valuation or an agreed formula based on the company’s finances.  The key is having a fair process that everyone understands.
• Who gets priority: If multiple people want to buy the shares, who gets first refusal? You might give everyone equal rights, or you might decide that certain people (like family members or long-term employees) get priority.

When the rules don't apply

Businesses may include some exceptions to their share transfer rules. These are effectively pre-approved transfers.  Common ones include:

• Family transfers: You may allow shares to be passed to spouses, children, or family trusts without restrictions.  Consider carefully the nature of the business and the relationships between shareholders.  For example, the dynamics may be very different if family members are introduced.
• Transfers between existing shareholders: If one shareholder wants to sell to another current shareholder, this often doesn't need the same approval process.  Again, think through the implications.  Such a transfer may give certain individuals greater control.

Getting your paperwork right

You will typically find share transfer rules in these documents:

Articles of Association

This is the company’s constitution which is filed at Companies House and contains mechanisms regarding the operation of the company, which may include share transfer provisions. Every limited company has one.  Not every company understands the implications of the rules.  It is the first port of call when disputes arise – and that shouldn’t be the first time a shareholder or director considers them! 

Shareholders' Agreement

In contrast to the Articles, this is a private document which can contain a huge variety of provisions to reflect the particular circumstances of the business and the individual shareholders.  Such agreement may also include rules regarding share transfers.

While any such document must work in conjunction with the articles, the fact that a Shareholders’ Agreement is not on the public record means it is more suitable for any personal or commercially sensitive arrangements.

Questions to ask yourself

Before you need to deal with someone leaving, think through these scenarios:

• What would you want to happen if your business partner decided to retire tomorrow?
• Should someone who's been forced out be treated differently from someone who's leaving voluntarily?
• If the business can't afford to buy someone out immediately, what payment terms would work?

When to review your documents

Don't just write your articles and shareholders' agreement and forget about them. Review your rules regularly, especially when:

• Your business has grown or changed direction significantly
• There are changes within people’s personal lives
• A shareholder is leaving the business
• New shareholders are going to join
• You've had disagreements about how things should work
• It's been more than a couple of years since you last reviewed your arrangements

Getting help

Share transfers involve both legal and financial complexities. While you can't avoid all potential problems, getting professional help early can save you significant time, money, and stress later.

Don't wait until someone wants to leave

The worst time to try to agree on share transfer rules is when someone has already decided they want to leave. Emotions run high, positions become entrenched, and what should be a straightforward process becomes a battle.

Take some time now to think through what you'd want to happen if a shareholder left your business. Then check whether your current documentation actually makes this possible. If there are gaps, fix them now while everyone's getting along.

It's much easier to have these conversations when they're theoretical than when they're urgent and real. Your future self will thank you for taking the time to get this right.