A company is usually formed at the moment of greatest agreement. The founders share a plan, the first investor shares their enthusiasm, and the documents are kept as light as the moment allows. The constitution that goes on the public register is a short document of default rules, and it is rarely read again until something has gone wrong. A shareholders’ agreement is the private document that settles, while everyone is still on good terms, what will happen when they are not, and what will happen when one of them wants to leave, when money is needed, or when one of them dies. The time and money spent on it at the beginning is modest. The time and money spent on the dispute it would have prevented is not.
What the Companies Act leaves to the parties
The Companies Act 2014 supplies a framework rather than a bargain. A private company limited by shares may adopt a constitution of its own or fall back on the optional provisions of the Act, and those provisions answer the ordinary questions of corporate life in a general way. Shares to be allotted for cash must first be offered to the existing holders in proportion to their holdings unless the constitution or a special resolution provides otherwise.1 The directors may decline to register a transfer of shares without giving a reason, again unless the constitution provides otherwise.2 On the death of a member the shares pass to the personal representatives, who may be registered as members or may transfer the shares on, and who cannot vote until they are registered.3
What the Act does not do is tell the shareholders of a particular company how they have agreed to deal with one another. It says nothing about who sits on the board, what the company may do without the consent of a minority, whether profits are to be distributed or reinvested, what happens to the shares of a founder who leaves after a year, or at what price and on what terms a departing or deceased shareholder’s family will be bought out. Where the parties have not settled those questions the Act offers remedies instead. A member who considers that the company’s affairs are being conducted in a manner oppressive to him or in disregard of his interests may apply to the High Court, which may regulate the conduct of the company’s affairs, direct the purchase of his shares or award compensation.4 A member may also petition to have the company wound up on the ground that it is just and equitable to do so.5 Both are remedies of last resort, and both are litigation.
What the litigation looks like
The reported cases give a fair picture of what follows when the shareholders in a private company fall out without an agreement to guide them. In Re Murph’s Restaurants Ltd three men who had built a restaurant business as equals, each a director and each holding a third of the shares, fell out, and two of them excluded the third from the management of the company. Gannon J held that the company was in substance a partnership conducted through a corporate form, that the exclusion of one of the partners destroyed the mutual confidence on which the relationship rested, and that the company should be wound up on the just and equitable ground.6 A profitable business was brought to an end because there was no mechanism by which one partner could leave and the others could buy him out.
Irish Press plc v Ingersoll Irish Publications Ltd shows the other route. Two shareholders held the newspaper companies equally, with three directors each on a board of six. When the relationship broke down the only course open to the Irish side was a petition under what is now section 212. The hearing in the High Court lasted thirty eight days. Barron J found oppression and ordered the Ingersoll company to sell its shares at a price to be fixed by the court, and the valuation was adjourned to a further hearing. On appeal the Supreme Court held that the section did not permit an award of damages, a limitation which the Oireachtas has since removed, so that even the successful petitioner left the Supreme Court with less than the High Court had given it.7 The newspapers themselves did not survive the dispute for long.
The pattern has not changed. In DAF Truck Services (Cork) Ltd a director of forty years’ standing who held thirty per cent of the company issued oppression proceedings in 2022. In November 2025 Roberts J granted him an injunction restraining the majority from removing him from the board while those proceedings remain pending, on the basis that the company was a quasi partnership in which he had a legitimate expectation of taking part in its management.8 Three years after the dispute began, the question of who sits on the board had been decided only on an interim basis, and the trial of the petition was still to come. Litigation of this kind is expensive, it is slow, it absorbs the attention of the people who should be running the business, and because it is fought between the owners of the company it is paid for, one way or another, out of the value of the company itself.
Each of these disputes turned on a question that a shareholders’ agreement would have answered in a page. Who may be removed from the board, and on what terms. What a shareholder who wishes to leave is entitled to receive for his shares, and when. Who decides, and how, when the owners cannot agree. A court can answer those questions, but it answers them years later, at great expense, and in a judgment that neither side chose.
What a shareholders’ agreement does
A shareholders’ agreement is a contract between the shareholders, and usually the company, which sits alongside the constitution. Unlike the constitution it is not filed in the Companies Registration Office, so the parties’ commercial arrangements remain private, and unlike the constitution it can be enforced as a contract by the parties to it. In McGilligan v O’Grady an investor had agreed with the company and its bank that its nominee would be appointed a director, and when the majority convened a meeting to remove him the High Court restrained the removal pending the hearing of his oppression petition, an order which the Supreme Court upheld.9 The agreement gave the court something definite to hold the majority to.
The matters usually settled in the agreement fall into a few groups. The first concerns control. The agreement lists the reserved matters that the company may not undertake without the consent of a minority or of a stated majority, such as issuing shares, borrowing beyond a limit, changing the nature of the business, entering into transactions with directors or their connected persons, or altering the constitution. It provides for the composition of the board, for the right of a shareholder or a class of shareholders to appoint and remove a director, for the quorum at board and general meetings, and for the information that shareholders who are not directors are entitled to receive.
The second concerns money. The agreement states how the company is to be funded, whether shareholders are obliged to contribute further capital or to lend to the company, how new shares are to be offered and how a shareholder who does not take up his entitlement is diluted, and what the policy on dividends is to be. A minority shareholder in a company that never pays a dividend, and whose majority draws its return as remuneration, has a grievance that the Act addresses only through section 212. The agreement addresses it in advance.
The third concerns the shares themselves. The agreement restricts transfers so that a shareholder cannot sell to a stranger without first offering the shares to the others, permits transfers to family members or family companies where that is wanted, and provides drag along and tag along rights so that an offer for the whole company can be accepted and a minority is not left behind in a sale by the majority. For founders and employees who receive shares in return for their work it provides for vesting over time and for what happens when a holder leaves, with the price depending on whether the departure is a good leaver or a bad leaver event. It contains covenants on confidentiality and on competition after departure.
The fourth concerns disagreement. A fifty fifty company needs a deadlock provision, which may escalate the dispute to named individuals, require mediation, and in the last resort allow one party to offer to buy out the other at a price which the other may accept or may turn round and pay himself. Every agreement should contain a dispute resolution clause. The Irish courts will hold the parties to an arbitration clause in a shareholders’ agreement, and have recently done so where one party alleged that the agreement itself had been induced by misrepresentation, the clause being treated as separate from the contract in which it sits.10 The High Court has also confirmed that it has an inherent jurisdiction to direct parties to mediate, though it cannot compel them to settle.11 The parties can agree all of that for themselves at the outset, and choose a forum that is private and quick.
The agreement must be drawn so that it works with the constitution rather than against it. Provisions which affect the company’s own powers, such as transfer restrictions, pre-emption on allotment and the rights attaching to classes of shares, are usually written into the constitution as well, so that they bind the company and any later shareholder. The agreement then carries the matters that are personal to the signatories. Keeping the two documents in step, and reviewing them when a new shareholder comes in, is part of the discipline.
Investment at the start
The best time to put the agreement in place is at incorporation, or at the latest before the first outside money arrives. There are two reasons. The first is that an investor will insist on one. Whether the money comes from a business angel, from a fund, from Enterprise Ireland or through the Employment Investment Incentive, the subscription will be conditional on a subscription and shareholders’ agreement that protects the investor’s position, and founders who have not already settled their own arrangements find themselves negotiating two sets of terms at once, under time pressure and with the investor’s solicitors across the table.12 The second is that the terms are easier to agree while the company is worth little. Founders who hold equal shares in a company with no revenue can agree a leaver provision or a valuation formula in an afternoon. The same founders, three years later, with one of them carrying the business and another about to leave, cannot.
The cost of the exercise is a small fraction of the cost of the first serious disagreement. A shareholders’ agreement for a company with two or three founders and a first investor is a known piece of work. A section 212 petition is not. The early investment in the document is what ensures that the issues, when they arise, are dealt with under terms the parties chose, and that litigation does not become the only way of resolving them.
The death of a shareholder
The event least often provided for is the one that is certain to occur. When a shareholder in a private company dies, his shares pass to his personal representatives and then to whoever is entitled under his will or on intestacy. A surviving spouse has a legal right to one half of the estate where there are no children and to one third where there are, and that right is enforceable against the will.13 Unless something has been agreed, the family of the deceased shareholder becomes the holder of a block of shares in a private company for which there is no market, which carries no right to a dividend, and whose value depends on the goodwill of the surviving shareholders, who now have a co-owner they did not choose and who may need money rather than shares. The personal representatives can apply to the court under section 212 in the same way as a member,14 and the surviving shareholders may find themselves defending a petition brought by a widow.
A shareholders’ agreement deals with this in advance. The usual mechanism is a pair of options. On the death of a shareholder the surviving shareholders have the right to require the estate to sell the deceased’s shares to them, and the estate has the right to require the survivors to buy, at a price fixed by a formula in the agreement or by an independent valuation conducted on a basis the agreement prescribes, and payable within a stated time. The estate receives money, the survivors receive the shares, and nobody has to negotiate a valuation with a grieving family or with former partners. The agreement can also provide that the company itself will buy the shares. The Act permits a company to acquire its own shares out of distributable profits with the authority of a special resolution,15 and Revenue has published its view that a purchase from the personal representatives of a deceased shareholder who wish to realise the value of the shares will ordinarily be regarded as made for the benefit of the company’s trade, which is one of the conditions for the payment being treated as capital in the vendor’s hands rather than as a distribution.16
Funding the buyout with insurance
An option is only as good as the money behind it. Surviving shareholders in a small trading company rarely have the cash to buy out an estate at full value, and a company that has just lost a founder is rarely in a position to lend it to them. The answer, in companies of the size most of our clients run, is insurance, and two kinds of policy do two different jobs.
Key person cover protects the company. The company takes out a policy on the life of a director or employee whose loss would damage its profits, pays the premiums, and receives the proceeds, which it uses to recruit a replacement, to reassure its bank and its customers, and to carry the business through the period of disruption. Revenue’s published practice allows the premiums as a deduction, and taxes the proceeds as a trading receipt, where the policy is a term policy with no investment element, taken out solely to protect the company against loss of profits, on the life of a person whose only relationship with the company is as an employee or director and who does not hold a substantial stake in it. Where those conditions are not met the premiums are not deductible and the proceeds are not taxed.17 The policy does nothing for the family of the person who has died. That is the job of the second kind.
Shareholder protection cover, often called co-directors’ insurance, is arranged so that money is available to buy the deceased’s shares. Each shareholder either takes out a policy on the life of each of the others, or takes out a policy on his own life and holds it in trust for the others, and the policies are tied to the options in the shareholders’ agreement so that the proceeds are applied in buying the shares. Revenue accepts that proceeds received in this way are not liable to capital acquisitions tax provided the arrangement was entered into for commercial reasons at arm’s length, each shareholder pays the premiums on the policy from which he will benefit or has them paid on his behalf out of his own account with the company, the sum assured reflects the value of the shareholding so that no more than is needed to buy the shares passes, and the arrangement is reciprocal and supported by the option agreement and, where the policies are written in trust, by a trust document. Any surplus over what is needed to buy the shares is taxable, and a policy that remains in force after the company is wound up or after only one shareholder survives falls outside the practice.18 The arrangement is framed as reciprocal options rather than as a binding contract to sell on death, which leaves the shares as shares in the hands of the estate until an option is exercised, and the tax position of the estate and of the survivors should be checked by the company’s tax adviser before the policies are put in place.
The effect, when it is done properly, is that the insurer pays the estate, through the survivors, the agreed value of the shares within weeks of the death. The family is not left holding shares it cannot sell, the survivors are not left with a partner they did not choose or a debt they cannot fund, and the company carries on. In essence the policy pays out to the estate, rather than the company and the estate paying their lawyers.
Estate planning within the corporate structure
The shareholders’ agreement and the shareholder’s will have to say the same thing. It is common to find a will that leaves the shares to a spouse who has no wish to be in the business and an agreement that obliges the estate to sell them, or an agreement that assumes the shares will pass to a son or daughter who works in the company while the will divides the estate equally among the children. The documents are drawn by different people at different times and nobody reads one against the other. The solicitor who prepares the shareholders’ agreement should see the wills, and the solicitor who prepares the will should see the agreement.
Estate planning can also be built into the corporate structure itself, so that the family’s financial interest in the company is provided for without leaving them shares whose value will have to be argued over. Where the intention is that a child who works in the business will carry it on, the shares can be transferred during the shareholder’s lifetime, and the capital gains tax retirement relief and the capital acquisitions tax business relief, which reduces the taxable value of qualifying business assets by ninety per cent, are available on transfers within the family that meet the conditions of those reliefs.19 Where the intention is that the family should receive an income or a capital sum rather than control, the company can create a separate class of shares, carrying a dividend or a preferential return but no vote, which can be held by a spouse, a family holding company or a trust, while the ordinary shares that carry control stay with those who run the business. The value of those shares can be fixed by the terms on which they are issued rather than by argument after the event. A spouse may renounce the legal right share in writing where the family’s provision is being made in another way,20 and the arrangement can be reviewed each time the shareholding, the family or the value of the company changes.
None of this is complicated in itself. What it requires is that the company’s constitution, the shareholders’ agreement, the insurance policies and the shareholders’ wills are prepared together and reviewed together, so that on the death of a shareholder each of them points the same way. The alternative is a family holding shares in a company run by people who are no longer their late husband’s or wife’s partners, a valuation that nobody agrees, and a dispute which section 212 was designed to resolve and which a few pages agreed at the outset would have prevented.
Practical steps
For a company that does not yet have an agreement, the steps are these. Put one in place now, before the next shareholder, the next investment or the next disagreement. Make sure the constitution reflects it. Agree a valuation basis and write it down. Take out key person cover on the people the business cannot do without, and shareholder protection cover tied to options in the agreement, in sums that reflect the value of the holdings, and review the sums as the company grows. Read the shareholders’ wills against the agreement. Then put the documents away and run the business, which is the point of having them.
This article is for general information only and does not constitute legal or tax advice. The tax treatment of insurance arrangements and of transfers of shares depends on the particular facts and on the conditions of the reliefs and Revenue practices referred to, which change from time to time, and advice should be taken before any arrangement is put in place.
Notes
- Companies Act 2014, section 69(6) to (12). ↩
- Companies Act 2014, section 95(1). ↩
- Companies Act 2014, section 96. ↩
- Companies Act 2014, section 212(1) to (3). ↩
- Companies Act 2014, section 569(1)(e). ↩
- Re Murph’s Restaurants Ltd [1979] ILRM 141 (High Court, Gannon J). ↩
- Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 IR 175; [1995] IESC 10 (Supreme Court, Blayney J, 25 May 1995), on appeal from Barron J (High Court, 15 December 1993). Section 212(3)(d) of the Companies Act 2014 now provides expressly for an order for the payment of compensation. ↩
- DAF Truck Services (Cork) Ltd v Companies Act 2014 [2025] IEHC 664 (High Court, Roberts J, 28 November 2025). ↩
- McGilligan v O’Grady [1999] 1 IR 346; [1998] IESC 38 (Supreme Court, 5 November 1998). ↩
- O’Callaghan v O’Callaghan [2026] IEHC 254; Arbitration Act 2010. ↩
- J Burke & Associates Ltd v O’Connell [2026] IEHC 314; Mediation Act 2017. ↩
- Taxes Consolidation Act 1997, Part 16 (Employment Investment Incentive). ↩
- Succession Act 1965, section 111. ↩
- Companies Act 2014, section 212(8). ↩
- Companies Act 2014, section 105. ↩
- Taxes Consolidation Act 1997, sections 176 to 186; Revenue Tax and Duty Manual Part 06-09-01, Acquisition by a company of its own shares, paragraph 2.1 and Appendix II. ↩
- Revenue Tax and Duty Manual Part 04-06-01, Life Assurance Policies Effected by Employers on the Lives of their Employees. ↩
- Revenue Capital Acquisitions Tax Manual, Part 19, paragraph 19.16, Co-directors and business partners assurance. ↩
- Taxes Consolidation Act 1997, sections 598 and 599; Capital Acquisitions Tax Consolidation Act 2003, sections 90 to 102. ↩
- Succession Act 1965, section 113. ↩