Are both a shareholders agreement and articles of association needed?
- July 3, 2017 at 10:58 am #2655
A common query I have is whether a company also needs to produce bespoke, amended articles of association as well as a shareholders agreement, or just retain the standard articles the company was incorporated with.
Often just a shareholders agreement is produced (containing all material provisions regulating the operation of the company in respect of ownership matters) and the standard articles of association are left as they are (that the company was incorporated with).
The shareholders agreement will have a provision whereby to the extent that anything conflicts in the articles then the shareholders agreement will take precedence. In any case the standard articles do not really contain anything substantive, more so relatively inconsequential administrative details. If they contain anything a company would like varied (e.g. often the voting requirements for the appointment and termination of directors) then such variation can be dealt with in the shareholders agreement.
The articles are a public document available at Companies House and require a special resolution (75%) to be changed. In the majority of situations people will prefer to include all material constitutional provisions regulating the relationship between the shareholders solely in a private and confidential shareholders agreement (requiring unanimity to change unless you include a clause to the contrary).
Its only when companies foresee that their shareholder base will change regularly (e.g. several equity investment rounds) when they will produce both bespoke articles and a separate shareholders agreement, with the articles containing many provisions that would otherwise be in the shareholders agreement, just because 1) the articles are often easier to change due to the 75% (of voting shares) special resolution required and 2) such more standard provisions the company does not mind being available publicly in the articles should their competitors or anyone else want to download them.
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