Business Law and Practice notes - BPP Law School - High Distinction Level notes!
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2. The relationship between a Shareholders Agreement & the company’s Articles-
Articles govern the day to day management of a company
It includes provisions for directors – their power and responsibilities, as well as how they make
decisions, procedures for removal/ appointment
Also includes, any special rights attaching to different classes of shares, the procedure for
transferring shares, the procedure for making distributions of the company’s profits and the
procedure to be followed in connection with decision making by shareholders.
The Articles:
Treated as a contract between the company and it’s shareholders in their capacity as
shareholder – pursuant to s33 CA ‘06
Does not deal with shareholders rights/ obligations
Subject to CA ‘06 - as it will void any articles which are conflicting
A Shareholders’ Agreement:
A contract between some/ all shareholders
An agreement of how they will regulate the affairs of the company
o Such provisions in a Shareholders’ Agreement will constitute personal rights and
obligations on the shareholders, including how they will exercise their voting rights on
certain decisions.
Not subject to CA ‘06
Kept private – not filed at CH
For example, s.168(1) CA 2006 permits a company to remove a director by ordinary resolution, which
only requires a simple majority.
An agreement not to remove a director unless there is unanimous shareholder approval should
not be placed in the Articles.
However, a Shareholders’ Agreement could stipulate that no director will be removed without
the unanimous consent of all the shareholders, because shareholders can make a private
agreement amongst themselves as to how they will vote on certain matters
Such a provision does not remove the statutory right of the majority shareholders to remove a director
under s.168 CA 2006, as a company is bound to accept the vote of a shareholder even if that
shareholder is voting in a way that breaches the provisions of a Shareholders’ Agreement.
The shareholder’s vote would still be effective but the other shareholders (including the director
removed if he were also a shareholder) would be able to bring an action for breach of contract
(i.e. the Shareholders’ Agreement) against the miscreant shareholder (possibility of equitable
remedies such as specific performance).
The remedy for breach will there for be against the shareholder concerned and NOT the
company
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