Are my company’s articles of association and shareholders’ agreement consistent?

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The articles of association and shareholders’ pacts are two essential documents for a company. What if the two aren’t on the same page when it comes to key issues? Julie Nixon, Senior Partner and Robert Jessiman, a lawyer on Morton Fraser’s corporate team, explore the issue.

When building a business to be successful, it is important to have the right foundations in place. This includes ensuring that the governing documents relating to the company and its shareholders are clear and consistent. These documents can often overlap on key issues, and so any conflict or ambiguity can cause problems for those who are party to them. The recent Lord v Maven Wealth Group case [2021] EWHC 2544 (Comm) offers such an example, where the shareholders of a company disagreed on how to read the company’s articles of association and the shareholders’ agreement together. Before examining this case in more detail, it is first important to understand the nature and purpose of these two documents.

Articles of association and shareholders’ agreements – a short guide

A company’s articles of association are its main constituent document. Every limited company is legally required to have a set, which must also be filed with Companies House. The articles will then be made available to the public on the Companies House website. A company can have bespoke statutes or use standard “default” statutes prescribed by law. The Articles of Association cover a wide range of issues including (but not limited to):-

  • the appointment and removal of directors;
  • the rights attached to each category of shares held in the company; and
  • how shares can be issued and transferred.

As a company’s main constitutional document, a violation of the articles of association can invalidate a decision.

Shareholders’ agreements are a form of contract concluded between the shareholders of a company. This agreement governs relations between shareholders and may include restrictive clauses for shareholders and provisions relating to the settlement of disputes between shareholders. The shareholders agreement is a private document and does not need to be filed with Companies House. However, if it is necessary to read a shareholders’ agreement to fully understand its articles of association (because the documents refer to each other), the company may be required to file the shareholders’ agreement itself publicly. Failure to comply with the terms of a shareholders agreement opens the breaching party to damages, but will not in itself void an action.

Lord v Maven Wealth Group – what happened?

the Lord the case arose out of a dispute between the shareholders of a financial services company (the “Society”). During a sale of new status shares (the “Articles”) were adopted by the Company and the Company and its shareholders entered into a new purchase option and a new shareholders’ agreement (the “Agreement”). The plaintiffs were employees of the Company who were suspended from their duties. This withdrawal constituted aTransfer eventunder the articles of association which led to the forced sale of the employees’ shares. The parties could not agree on how to interpret the relevant clauses of the Articles of Association and the Agreement in order to value the actions for this forced transfer. The agreement included a clause stating that in the event of any conflict between the articles or the agreement, the latter would prevail. Employees sought to rely on this provision to use the evaluation mechanism of the agreement. The defendants argued that only the articles of association should be used for the valuation and that the two documents were not in conflict in this specific case.

After reviewing the documentation, the court found that there was only an “unimportant mess” between the two documents and found no relevant conflict between them. Although the facts have resolved this case without further exploration as to the management of the conflicting terms between a shareholders’ agreement and the articles of association, there is an important lesson to be learned from the case. Namely, even the perception of a conflict between constitutional documents can lead to disputes. Therefore, it is important that these documents are drafted carefully to ensure that the meaning is clear in all documents. This is particularly important when these documents are not written at the same time.


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