Starting or in the process of running a business? If so, you’ll doubtless know the importance of understanding your legal responsibilities and the framework that underpins these responsibilities.
A big part of this framework is two key legal documents: the Articles of Association and the Shareholders Agreement. The former applies to businesses of all types by law, where the latter only applies for businesses that have two or more shareholders.
Here, Talbots Law’s legal experts will explain in more detail what is meant by the term Articles of Association and Shareholders Agreement, and what the key differences are between the two.
Let’s begin by exploring the definition of a Shareholders Agreement.
What is the Meaning of a Shareholders Agreement?
Put simply, a Shareholders Agreement is a legally binding contract that seeks to define how the business is run and what responsibility each shareholder will have. It will also outline what the general process will be when key decisions have to be taken.
Shareholders Agreement, as such, offers protection for shareholders in the case of disputes, share transfers and management structure changes. And it’s for this reason that this type of agreement is popular for startups and growing businesses.
To learn more about what a Shareholders Agreement covers and why it’s so important, check out our full Shareholders Agreement guide.
What is the Meaning of Articles of Association?
Articles of Association, sometimes referred to simply as Articles, address the internal governance of a company. Together they contractually set out the rules of how the shareholders and the company will run, and how the shareholders themselves will interact with this process.
For every company set up under the Companies Act 2006, the Articles of Association is a legal requirement. As part of this, they must not only meet statutory requirements but also have inherent flexibility that can accommodate the needs of every business.
Explore our full guide to Articles of Association to find out more.
What is the Difference Between a Shareholders Agreement and Articles of Association?
So, there are a number of key differences between a Shareholders Agreement and Articles of Association.
Perhaps the main distinction concerns their respective legal statuses. Where Articles of Association are a legal requirement for all companies under the Companies Act 2006, a Shareholders Agreement is only optional, and only comes into play when there are two or more shareholders.
As part of this, a Shareholders Agreement is a private document, whereas Articles of Association are public and available for everyone to view via Companies House.
There are also differences in their intended purposes. Articles of Association generally set the internal governance rules of the company, while Shareholders Agreement is more concerned with the relationship between shareholders.
In cases of disputes, Shareholders Agreement usually takes precedence – this is because it is typically more flexible than Articles of Association, and as such can apply itself better to the unique circumstances of the business in question. This is as long as the agreement does not breach statutory requirements.
Get in Touch With Our Shareholders Agreement Solicitors for Expert Advice
Every business is unique, and your Shareholders Agreement should be too. At Talbots Law, our Corporate & Commercial Team takes the time to understand your goals and long-term plans, while ensuring your agreement is watertight.
Our Lexcel-accredited practice is 5 star rated on Trustpilot from over 600 clients and has an employee-owned structure that puts your success at the heart of everything we do. You can trust our specialist Shareholders Agreement solicitors to provide dependable advice on drafting, reviewing and negotiating agreements of all types.
Speak to our Corporate & Commercial Team today on 0800 118 1500 or get in touch online to arrange a consultation. We’re here to help you move forward with confidence.