When setting up a company, there are several legal documents that must be drafted and agreed upon by its founders, including the articles of association and shareholders’ agreement. These documents set out the rules and regulations that govern how the company will be run and how decisions will be made. In this article, we will look at some of the most common provisions that are included in these documents.

Articles of Association

The articles of association are a company’s internal rule book. They set out the procedures for the management and administration of the company and govern the relationship between the company, its directors, and its shareholders. Some common provisions that may be included in a company’s articles of association are:

Objects Clause: This outlines the purpose and scope of the company’s business activities.

Share Capital: This section covers the company’s share capital, including the number of shares, their nominal value, and any restrictions on their transfer (such as pre-emption rights on transfer, drag and tag along rights and compulsory transfer obligations).

Director Appointment and Removal: This section sets out the procedure for appointing and removing directors, as well as their powers and duties.

Meetings: This outlines the rules for holding meetings of shareholders and directors, including notice requirements, quorum, and voting procedures.

Dividends: This section sets out the rules for the payment of dividends to shareholders, including the timing and amount of payments.

Winding up: This section outlines the procedure for winding up the company, including the appointment of liquidators and the distribution of assets.

Shareholders’ Agreement

A shareholders’ agreement is a private contract between the company’s shareholders. It sets out the rights and obligations of each shareholder and governs their relationship with each other and the company. Some common provisions that may be included in a shareholders’ agreement are:

Shareholder Rights: This section outlines the rights of shareholders, including voting rights, the right to receive dividends, and the right to participate in the management of the company.

Shareholder Obligations: This section outlines the obligations of shareholders, including restrictions on the transfer of shares and requirements to provide financial support to the company.

Board Composition: This section sets out the composition of the board of directors, including the number of directors, how they are appointed, and any special voting requirements.

Decision Making: This outlines the procedures for making decisions, including the types of decisions that require shareholder approval and the voting thresholds required for approval.

Dispute Resolution: This section sets out the procedures for resolving disputes between shareholders, including the use of mediation or arbitration.

Exit Strategy: This outlines the procedures for a shareholder to exit the company, including the sale of shares and any restrictions on the transfer of shares.

Conclusion

The articles of association and shareholders’ agreement are critical legal documents that govern the operation of a company. It is essential that they are drafted carefully to ensure that they reflect the intentions of the founders and protect the interests of the company and its shareholders. If you are starting a company, it is recommended that you seek legal advice to ensure that your articles of association and shareholders’ agreement are drafted correctly and cover all necessary provisions.

This article is for general information only and does not constitute legal advice. If you would like to discuss anything in this article, please get in touch. 

The author generated this text in part with GPT-3, OpenAI’s large-scale language-generation model. Upon generating draft language, the author reviewed, edited, and revised the language to their own liking and takes ultimate responsibility for the content of this publication.