The Companies Act 2006 provides the legal framework for share capital in England and Wales. Directors require authority to allot shares (s550 for single-class companies, s551 for general authority — typically renewed annually at the AGM). Existing shareholders have statutory pre-emption rights on new allotments for cash (s561), which can be disapplied by special resolution (s569/s570). Share buy-backs are permitted under Part 18, with specific procedures for market and off-market purchases. A shareholders' agreement (SHA) operates as a contract between the shareholders and typically sits alongside the Articles of Association. The SHA governs matters not covered by the Articles: transfer restrictions (pre-emption, drag-along requiring minority shareholders to sell if a majority accepts an offer, tag-along allowing minorities to participate in a sale), board composition and reserved matters (decisions requiring unanimous or supermajority consent), anti-dilution protection (full ratchet or weighted average), deadlock resolution (escalation, put/call options, expert determination, winding-up), and information rights. The SHA is a private document (unlike the Articles, which are filed at Companies House), giving parties confidentiality over commercial terms.
Drag-Along Right
A contractual provision in a shareholders' agreement that allows a majority shareholder (typically holding 75% or more) to compel minority shareholders to sell their shares on the same terms as the majority in a sale to a third party. This ensures that a buyer can acquire 100% of the company without being held to ransom by minority holders. The drag-along typically includes price protection (same price per share) and time-limited exercise windows.