Differences Between Shareholders' Agreement And Articles Of Association

• Published date: 21 September 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Myerson Solicitors LLP
• Author: Myerson Solicitors LLP

A shareholders' agreement and the company's articles of association (Articles) are important constitutional documents for a company, particularly where there is more than one shareholder.

The documents both serve different purposes and have different legal implications.

However, together, they seek to govern the affairs and management of the company.

The Articles

The Articles are required by the Companies Act 2006 (the Act)and, typically, will set out the rights attaching to the shares, as well as the management and administrative structure of the company.

Unlike a shareholders' agreement, the Articles are filed with Companies House and are available for public inspection online.

A company's articles typically also cover matters such as:

• the appointment and removal of directors;
• the rules surrounding director decision-making (including quorate meetings, method of voting and limits on directors' powers);
• pre-emption rights (on both issue and transfers of shares);
• details of the voting, dividend and capital rights of the shares;
• situations in which a shareholder can be compelled to give up his shares;
• the rules concerning decision making of shareholders at general meetings; and
• various other administrative matters.

The shareholders' agreement

Conversely, a shareholders' agreement is a private contract between the shareholders of a company and is not a legal requirement.

It can, however, be a useful agreement to supplement the Articles with matters which are more appropriate for a private agreement.

Shareholders' agreements can cover...