What’s the difference between articles of association and a shareholders’ agreement? The main difference is that the articles are a statutory requirement which is a public document whilst a shareholders’ agreement is a private contract.
In case of public company if the terms and conditions in the shareholders agreement is not in contravention to the provisions of the company act and the articles of association then it would be enforceable against the members. Albeit, no obligations can be imposed on the statutory powers of the company.
Are directors bound by articles of association?
The articles are binding on all directors and shareholders, come what may and are also a public document. All companies are required to publish their articles on the public record maintained by Companies House.
Is articles of association a contract?
The features of Article of Association are: It is a part of the constitution of an organization. It is a contract between the members and among the members themselves. It lays down the duties of stockholders also.
The Articles of Association are the rules and regulations or by-laws for governing the internal affairs and conduct of the company. It prescribes the internal regulations for the governing of the company and powers of the directors and officers of the company as well as the rights of the shareholders.
The fact is, without a shareholders’ agreement, a minority shareholder could block a sale. The way around this is to agree ‘drag along’ or ‘tag along’ provisions in an agreement so that, if the majority of shareholders want to sell, the minority will do so too.
Can articles of association override Companies Act?
It is a settled company law principle that the articles of association of a company cannot override the provisions of the Companies Act, 2013.
The shareholders agreement is a special type of contract called a “deed”. This means it must be signed in a special way: Print a copy for each shareholder and one for the company directors. You cannot sign online.
Further protection for a minority shareholder is that once a shareholders’ agreement is in place, it can only be amended with the agreement of all of the shareholders to the original agreement whereas the company’s articles of association can be changed by a 75% majority.
It outlines the rights, obligations of the shareholders and provisions related to the management and the authorities of the company. The purpose of the agreement is to protect the interests of the shareholders; especially minority shareholders i.e the ones holding less than 50% of shares in the company.