When it comes to corporate governance, both the articles of association and the shareholders agreement are essential documents that dictate how a company operates. However, there may be instances where the articles of association override the shareholders agreement.
The articles of association are a set of rules that outline the internal management of a company. They are typically adopted at the time of incorporation and registered with the Companies House. The articles cover important aspects such as the appointment and removal of directors, the rights of shareholders, and the distribution of profits.
On the other hand, the shareholders agreement is a private contract between the shareholders of a company. It outlines their rights and obligations and can cover a wide range of issues such as voting rights, share transfers, and dispute resolution mechanisms.
So, what happens when there is a conflict between the articles of association and the shareholders agreement? In such cases, the articles of association will usually take precedence.
This is because the articles of association are a public document that is available for anyone to access. They are also registered with the Companies House and must comply with the Companies Act 2006. Therefore, they are deemed to be the official constitution of the company.
On the other hand, the shareholders agreement is a private contract between the shareholders and does not have the same legal status as the articles of association. While the shareholders agreement is binding on the parties who have signed it, it may not be enforceable against outsiders such as the company itself.
That being said, it is still important for companies to have a well-drafted shareholders agreement that is consistent with the articles of association. This ensures that there are no conflicting provisions and that the rights and obligations of the shareholders are clearly defined.
In conclusion, while the shareholders agreement is an important document in corporate governance, it may be overridden by the articles of association in case of conflict. Therefore, it is crucial for companies to ensure that both these documents are consistent with each other and serve the best interests of all stakeholders.