I gave shares to my employee but didn't get a shareholders' agreement — what now?

You wanted to reward a brilliant employee, so you "gave them some shares".

Now it's not working out and you've realised you've effectively married them… without a prenup.

You are not alone.

This is one of the most common "please help, I've made it weird" instructions we see from founders and owner-managers. The good news is there are usually options. The bad news is none of them involve just quietly pretending the shares never happened.

Why this is more than "a bit of equity"

Once someone is a shareholder, they're not just "motivated staff" — they're a co-owner.

Depending on how you set it up (or didn't), they may now have:

• Rights to vote on certain decisions.
• Rights to information (accounts, notices, resolutions).
• Rights to dividends if and when you pay them.

And crucially: if you want those shares back, you can't just press undo.

You either need a contractual route (that you do not currently have) or a negotiated route. And if you've also made them a director, should you have made them a director too? what the risks look like is well worth reading alongside this.

First, get clear on what you've actually done

Before you panic, you need to work out the reality, not the story in everyone's head.

Key questions:

• How many shares do they have, and what percentage of the company is that now?
• Is their name on the register of members and at Companies House, or was this all theoretical?
• Did you issue new shares or transfer existing ones from a founder?
• Are there any leaver provisions hiding in:
  • The articles of association,
  • Old investment documents, or
  • An EMI/options or growth share scheme paperwork?

Sometimes there are basic drag/tag or compulsory transfer provisions already baked into your articles or option scheme that give you some structure to work with. Sometimes there is absolutely nothing, in which case we're in pure negotiation territory.

The problem when things aren't working out

You now have a person who is:

• An employee (with employment rights, unfair dismissal risk, discrimination risk, etc.), and
• A shareholder (with property rights over their shares and corporate rights).

Those are two different legal hats.

If you manage the employment side badly (e.g. an unfair or discriminatory dismissal), they still keep their shares unless you have valid leaver mechanics.

If you fall out with them as a shareholder, you can't discipline them like staff — they still have whatever rights the company constitution gives them.

Your options, realistically

There are no magic bullets, but there are routes that can be structured and controlled.

1. Sort the employment position

If performance or behaviour is the problem:

• Deal with that on its own terms using fair HR process (performance management, disciplinaries, grievances where needed).
• Do not let the fact they are a shareholder make you sloppy or vindictive in employment emails — those are the ones that end up in tribunal bundles.

Getting the employment position clean (even if they leave) gives you clarity on the ongoing relationship and reduces the risk of everything turning into a sprawling dispute. See our guide on sorting the employment side — fair dismissal process if performance is the issue.

2. Negotiate a share buy-back or transfer

If they're leaving, you generally want those shares to come home or move to someone sensible.

Options include:

• Company buy-back of shares (subject to Companies Act rules and having enough distributable reserves / following the solvency requirements).
• Purchase by existing shareholders at an agreed price.
• Purchase by a new investor as part of a wider tidy-up.

The hard parts are:

• Price — what are those shares actually worth right now versus what they feel like they're worth.
• Conditions — are you tying the payment to them signing a settlement agreement and waivers?
• Tax — getting your accountant and lawyer aligned so you don't accidentally create a horrible tax bill for them or the company.

3. Tidy up your constitutional documents for the future

Whether or not you manage a clean exit, use this as the trigger to stop it ever happening again:

• Put a shareholders' agreement in place with:
  • Good leaver / bad leaver definitions,
  • Clear mechanics for compulsory transfers,
  • Agreed valuation methods.
• Refresh your articles of association so they work with the shareholders' agreement, not against it.
• Decide who will and won't get equity in future, and in what form (options, growth shares, etc.).

Future-you will thank you.

Things not to do (that we see all the time)

Please don't:

• Try to strong-arm them into signing something under threat when they're already upset. That's rocket fuel for litigation.
• Starve them of information you're legally obliged to provide as a shareholder.
• Fire them for "performance" with zero process in the hope they'll just hand the shares back and go away.
• Put wild theories and threats in writing — you will meet those again in disclosure.

How Bonsai would actually handle this

This is classic Bonsai work: messy human situation, legal spaghetti, and a founder who'd quite like to sleep again.

We'd typically:

• Analyse your cap table, Companies House filings, articles and any historic share/option documentation.
• Map your legal levers (if any) and your negotiation levers (their objectives, funding, timing, tax angles).
• Align the employment and shareholder exit strategy so you're not solving one problem while inflaming the other.
• Draft and run the proposed solution — whether that's a negotiated buy-back plus settlement agreement, or a more contentious path if they're being impossible.

And then we'd lock the door behind them with a proper shareholders' agreement and leaver provisions so you don't repeat the experience.

You can talk to Bonsai about untangling employee share issues directly, or find out more about our solicitor-led HR support for complex employment exits.