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Companies: The Dangers of Informality


Articles of Association

The articles of association set out the rules according to which a company must be run and administered. The articles of association form a contract of membership between the company and shareholders. They regulate a variety of  matters such as Liability of shareholders, Directors, Shares and distributions, Decision making by shareholders, Administrative provision.

Failure To Comply With Articles

1. Acting outside company’s powers

2. Pass Special Resolution to attempt to correct

3. Personal liability

Duties Of Director

A company’s management is the directors’ responsibility. Director must act within their powers under the company’s constitution i.e. the Articles of Association. As a director, it’s important to be familiar with the articles as they may constrain your decision-making powers in certain ways. If you exceed your powers, then related decisions could be reversed and you might even have to compensate the company for any resulting financial losses. Some of the other duties include:

1. Promoting the success of the company.

2. Independent judgement

3. Exercise reasonable care, skill and diligence

4. Conflicts of interest and personal benefits

5. Keeping a record

Shareholders Agreement

Shareholders’ agreement provides clarity on certain key matters that affect shareholders such as what rights they have as shareholder, when they need to be consulted by the directors on decisions affecting the company, and under what  circumstances can they transfer their shares to a different person. There is no legal requirement to have a formal shareholders’agreement. However, having one can benefit both the shareholders investing in your company, and the directors running your company..

Benefits Of Shareholder Agreement

1. They are private

2. Greater room for flexibility than Articles

3. Can be designed specifically for your needs

4. They can be time limited

5. They can avoid conflict or bind the parties to a method of resolution

What Should Go In A Shareholders’ Agreement?

1. Take professional advice with regard to your company

2. Most effective drafting should be combined with amending the Articles of Association of the company

3. They should contain items that will not generally be in the Articles








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