Memorandum and Articles of Association Shareholders Agreement: A Comprehensive Guide for Business Owners
When starting or running a business, it is essential to have a clear set of rules and regulations in place that define the roles and responsibilities of shareholders and directors. These rules are enshrined in three primary documents – the memorandum of association, the articles of association and the shareholders` agreement. Together, they form a solid foundation for the company`s governance, outlining the principles on which the business operates.
In this article, we will discuss the memorandum and articles of association shareholders agreement, dissecting each document`s contents and their roles in the corporate world.
Memorandum of Association
The memorandum of association is a legal document that outlines the company`s objectives, the extent of its operations and the liability borne by its members. It is the company`s founding document, and any alterations or changes to it require the approval of at least 75% of the company`s shareholders.
The memorandum of association contains the following information:
The company`s name and registered address.
The company`s objective and scope of operations.
The amount of capital invested in the company by its shareholders.
The liability of its shareholders in case of bankruptcy.
A statement that guarantees that the shareholders will pay for the company`s debts if the company goes bankrupt.
Articles of Association
The articles of association set out the company`s rules for conducting its business operations. It is a set of regulations agreed upon by the company`s shareholders when incorporating the company. The articles dictate the methods of conducting board meetings, the appointment of directors, dividends, and the distribution of profits.
The articles of association typically cover the following:
The appointment and removal of directors.
The number of directors and their powers.
The appointment of company secretary.
The issue, allotment, and transfer of shares.
The admission and expulsion of members.
The payment of dividends.
The shareholders` voting rights.
The company`s borrowing powers.
The shareholders` Agreement
The shareholders` agreement sets out the contractual relationships between the shareholders of a company. It covers the rights and obligations of shareholders in the company, including the company`s management and decision-making process.
A shareholders` agreement typically covers the following:
The method of valuations of shares.
The transfer of shares` restrictions.
The provisions for deadlock resolution.
The company`s exit strategy.
The management of the company.
The agreement can be tailored to suit the needs of individual shareholders, making it a flexible and adaptable document.
In conclusion, the memorandum and articles of association shareholders` agreement sets out the legal framework that governs the company`s operations. The memorandum outlines the company`s objectives, the extent of its operations and the liability borne by its members. The articles of association set out the rules and regulations for conducting business operations. The shareholders` agreement governs the contractual relationships between shareholders and the company, including the management and decision-making process.
As a business owner, it is essential to understand the contents of these documents and seek professional advice when drafting or amending them. A robust governance framework ensures that the company operates smoothly and efficiently, making it more attractive to investors and clients alike.