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Chris Dobson


Although the Articles of Association (Articles) and Shareholders’ Agreement of a company are separate documents, it is important that they work with one another and do not contradict each other. The recent High Court decision in Lord and another v Maven Wealth Group Ltd and others acts as a timely reminder of the need for clear drafting of these documents.

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The case involved a dispute between the shareholders regarding how the claimants’ shareholdings should be valued following the exercise of compulsory transfer provisions in the company’s Articles.

The claimants argued that the correct procedure for valuing the shares was set out in the Call Option and Shareholders’ Agreement (COSA), as this followed directly from the definition of “Fair Value” in the Articles. There were also provisions in the COSA stating that the documents should be read together, and that in instances where there was a conflict between the COSA and the Articles, the terms of the COSA would prevail. On the other hand, the defendants claimed that the shares should be valued in accordance with the Articles alone and that the reference to “Fair Value” in the COSA was only to identify the formula for determining the price, not the mechanism for that determination.

The High Court held that the defendants were correct and that the shares should be valued in accordance with the Articles. Although there was a conflict resolution provision in the COSA, the court agreed that there was no genuine conflict between the provisions of the Articles and the COSA, rather some “fairly unimportant untidiness”.

The decision in Lord and another v Maven Wealth Group Ltd and others very much turned on the facts of the case, but it nevertheless highlights the importance of the need to put a well drafted Shareholders’ Agreement in place and to ensure that it works in tandem with your company’s Articles.

 What are Articles of Association?

All limited companies are legally required to have a set of Articles, which will need to be filed at Companies House. The Articles are the company’s main constitutional document, governing such issues as the rights attached to the company’ shares, how meetings are held and how decisions between the directors and shareholders are made.

Other typical provisions found in a company’s Articles include:

  • The procedures involved in the issuance, transfer and buying back of shares;
  • Rights and responsibilities of directors;
  • The declaration and payment of dividends;
  • Tag along and drag along rights.

Although the Articles are a compulsory document, there is still some flexibility for you to run your company how you see fit. There are different forms of Articles available for your company to adopt, and although they must comply with the provisions of the Companies Act 2006, many of the provisions can be amended to suit the needs of your company.

What is a Shareholders’ Agreement?

A Shareholders’ Agreement is a contract made between the shareholders of the company setting out their respective rights and responsibilities within the wider context of the operation of the company. Unlike the Articles, it is not a legal requirement for a limited company to have one, however it is a good idea to put one in place as it aims to ensure that the individual shareholders are treated fairly in the case of a dispute.

Typical provisions found in the Shareholders’ Agreement include:

  • Protecting minority and majority shareholders;
  • Dispute resolution mechanisms;
  • The amount of time each party is to spend working for the company;
  • The extent to which shareholders may have other interests besides the company;
  • A list of decisions that the directors can make without reference to the shareholders (some of which may be by reference to expenditure for example);
  • A list of decisions that must be referred to the shareholders;
  • What happens if a shareholder decides to sell his shares (which may include a right of first refusal to other shareholders);
  • Situations in which a shareholder can be compelled to give up his shares; and
  • Restrictive covenants.

What are the differences?

The key difference between the Articles and the Shareholders’ Agreement is that because the Articles are a statutory document that companies are obligated to keep and abide by, they must be made publicly available at Companies House. By contrast, the Shareholders’ Agreement is a contract between the shareholders of the company, and is kept private.

Furthermore, as a contract, if one of the parties breaches the Shareholders’ Agreement, the others will be able to sue the party in breach for damages. This differs to a breach of the Articles, which could render a decision void. This is an important distinction to make for shareholders who may not feel that a claim in damages under a Shareholders’ Agreement will be as valuable as the potential remedy of having the offending action declared void for being a breach of the Articles.

How can we help?

Although it may be hard to foresee a time when the shareholders disagree, it is a good idea to have a Shareholders’ Agreement as it will govern what will happen in case of a dispute between the parties. We recommend implementing one at the same time as adopting new Articles to ensure that the documents work hand in hand, as this article illustrates, there can certainly be some commonality in the general areas they cover and so there is a risk of them contradicting one another if care is not taken.

We can advise you of the provisions to include in each document to suit your company’s needs and to ensure that the documents dovetail with one another.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.


Get in touch

If you have any questions relating to this article or have any corporate issues you would like to discuss, please contact the corporate team on [email protected]

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