AI can produce a document that on face value looks like a Shareholders’ Agreement. The real issue is whether the agreement reflects the deal the parties have agreed and the realities of the business it is intended to protect.
In my experience as a corporate lawyer at Awdry Law, that is where the real risk of using AI to draft a shareholders agreement lies.
A good Shareholders’ Agreement is not just a precedent with the names changed. It is a practical working document that covers control, decision-making, exits, disputes and the commercial arrangements behind the business.
For business owners, this matters because a Shareholders’ Agreement often becomes one of the most important documents in the life of a company.
It sets the ground rules when difficult issues arise: who makes key decisions, what happens if someone wants to leave, how shares can be transferred, and how disputes are handled. In short, it is there to protect both the business and the people behind it; particularly once the relationship is no longer in its honeymoon period.
AI may have a role as a support tool, but it should not replace legal judgment.
If a Shareholders’ Agreement is poorly drafted, the problems are rarely obvious on day one.
They tend to surface later, when relationships become strained, cash is tight, or a sale is on the table.
Unfortunately, that is also the moment when nobody wants a philosophical debate about what the clause was supposed to mean.
Where the risk lies in AI-drafted shareholders agreements
The first issue with drafting a shareholders agreement using AI, such as ChatGPT is that AI drafting is often too generic.
A Shareholders’ Agreement needs to fit the company’s ownership structure, articles of association, funding position and commercial objectives.
Boilerplate language may sound convincing, and often does so with remarkable confidence, but it can miss the points that matter most to founders, investors or management teams.
The second issue is that AI can omit or mishandle key protections. Reserved matters, leaver provisions, pre-emption rights, drag and tag rights, information rights and deadlock mechanisms all need careful thought.
If those clauses are not properly calibrated, the agreement may store up disputes rather than prevent them, which is not usually the objective.
The cost of getting it wrong
AI-generated shareholders agreements can also contain inconsistencies, vague definitions, and clauses that do not work properly with the rest of the document set. That creates real risk in relation to enforcement, future investment rounds, and exit planning.
There is also the question of confidentiality. Feeding sensitive commercial information into the wrong platform may solve one problem and create several more.
There is a real cost point too. Businesses sometimes turn to AI to save time and money, but a weak first draft can be a false economy.
The cost of having a Shareholders’ Agreement properly drafted at the outset is usually modest compared with the cost of dealing later with an agreement that does not work when it is needed.
By that stage, the price may include not only legal fees, but also management time, disrupted transactions, damaged relationships, and a dispute nobody had budgeted for.
Where AI can still add value
Used properly, AI can still be helpful. It can assist with early issue-spotting, summaries, and internal efficiency.
But for a Shareholders’ Agreement, it should be a tool within the process, not the source of the final answer.
The final document still needs proper legal input and careful tailoring, however impressive the first draft may look at 11:30 pm.
Final thoughts
A Shareholders’ Agreement should protect the business when things do not go to plan. That calls for more than speed. It requires judgment, experience, and a clear understanding of the deal the parties are actually trying to document.
AI can be useful as part of the process, but it should not be left to draft a critical agreement unsupervised, any more than you would ask it to chair the board meeting.
This article has been prepared by Natasha Thomas, Senior Associate Solicitor in the Corporate law team at Awdry Law.
If your business is putting a Shareholders’ Agreement in place or reviewing an existing one, our team would be pleased to help.
