Articles of Association and Shareholders' Agreements
The articles of association (articles) of a company are its constitution. Well drafted articles will regulate important matters such as corporate governance, the appointment and removal of directors and provisions concerning the transfer of shares. Every company must have a set of articles and default articles apply where a company has not adopted its own articles. Default articles are usually inappropriate, as they provide little regulation of important matters such as share transfers.
Articles have to be filed at Companies House and so are open to inspection by the world at large, including competitors and suppliers. More sensitive aspects of the relationship between shareholders are commonly dealt with in a shareholders’ agreement, a confidential contract between shareholders that may not be required to be filed, if drafted properly.
Management Teams, Investors and Owner Managers
Documents should reflect the status of different participants. A company with two owner managers owning equal shares will require different articles to a company that has a financial investor with a management team owning shares in different proportions.
Independent advice is usually required where shareholders have a different status or there is a significant difference in the size of shareholding.
Protecting and enhancing value
Appropriate articles and a shareholders’ agreement, if necessary, represents a sound investment, providing certainty and security of expectation and reducing the risk of disputes, which can be costly and destructive.
Arrangements will often have a direct impact upon the value of shares. This might be relevant upon a sale, in the context of dispute or an owner manger becoming a leaver, or in a wider context, such as divorce, where a shareholding may require valuation.
We specialise in the drafting and negotiation of appropriate articles and shareholders' agreements in a range of contexts, including corporate transactions, management incentive arrangements, new or further investments, joint ventures and start-ups.
We are renowned for our services to management teams in the context of complex or significant buy outs and upon public offers [link] and we have free resources to start-ups via our Growth Centre.
We frequently review articles and shareholders’ agreements in the context of disputes, performance management and relationship breakdown.
Fixed Price Articles or Shareholders' Agreements
Save in a routine scenario, It is essential that articles and shareholders’ agreements are tailored to the need of a particular circumstance. We take time to understand individual circumstances to carefully craft appropriate arrangements. Fixed price or discounted articles of shareholders’ agreements tend to be a false economy.