What’s the difference between a Shareholder Agreement and Articles of Association?
Although these two documents both address a company’s internal rules, they have many differences. For instance, a company may keep its Shareholder Agreement private, but its Articles of Association are automatically available to the public once filed with Companies House. Further, under the Companies Act 2006, UK law requires companies to create Articles of Association during the incorporation process. Conversely, UK law doesn’t require all companies to create a Shareholder Agreement.
The Shareholder Agreement mainly outlines the relationship between shareholders and their corporation. In contrast, the Articles of Association outline:
Members’ liability
Directors’ rights and responsibilities
Decision-making processes
Shares, dividends, and other distributions
Administration arrangements
Indemnity and insurance
If you’re creating both documents, be sure that your Shareholder Agreement aligns with the rules set out in your company’s Articles of Association. This way, you won’t have conflicting rules that cause you to question which document should override the other.