Articles of Association and Shareholders’ Agreement: Key Documents for Regulating Rights, Obligations, and Corporate Rules

Articles of Association and Shareholders’ Agreement: Key Documents for Regulating Rights, Obligations, and Corporate Rules

Shareholders often face many uncertainties when determining the rules of the game that will govern their relationships with each other and with the company itself, including who and how the company will be represented to third parties. In this article, we aim to address some of the most frequent questions our clients have about what is regulated by the articles of association versus the shareholders’ agreement.

What are a company’s Articles of Association?

A company’s articles of association contain its organizational and operational rules, i.e., the distribution of functions, decision-making powers, and the relationships between the company and its shareholders, setting forth their rights and obligations.

This document is attached to the company’s incorporation deed, and its minimum content is governed by Article 9 of the Law on Public Limited Companies and Limited Liability Companies, which includes identification of the company (name, registered office, purpose, share capital, and contributions), the structure of the management body, and its term.

The articles may include any covenants and conditions the shareholders deem appropriate, provided they do not conflict with the law. It is worth noting that the articles of association take precedence over statutory law, which acts as a supplementary framework.

Including a covenant in the articles subjects it to a specific legal regime, both in terms of inter partes effect and its amendment or enforceability against future shareholders. Thus, the articles can only be amended through a formal procedure meeting the legal requirements and majorities established by law or the articles themselves. Resolutions adopted bind both current and future shareholders.

Therefore, if shareholders adopt a resolution that contravenes the articles, that resolution will be challengeable.

And what about the Shareholders’ Agreement?

The shareholders’ agreement is a private document that complements statutory and article-based provisions, adopted by shareholders to regulate matters that, by their nature, cannot be included in the articles or that the parties prefer to keep confidential. These agreements—also called parasocial agreements—are entirely voluntary.

Shareholders may sign such agreements at the time of incorporation (highly recommended) or later, once the project and its challenges are more clearly defined.

Like any contract, these agreements have effect only between the signatory shareholders and not against the company. However, this does not preclude internal claims among shareholders for breach of contract under the adopted corporate agreements.

The purpose of the shareholders’ agreement is to prevent conflicts and foresee solutions to potential disputes among shareholders and/or with third parties, ensuring the project’s viability and regulating shareholders’ rights and obligations.



Effectiveness of Agreements

To ensure the effectiveness of the shareholders’ agreement, a dual mechanism is recommended:
1. Incorporate it into the articles as an accessory clause, stipulating that breach may lead to exclusion from the company.
2. Execute a separate contract among shareholders, allowing for remedies outside the corporate framework against the breaching shareholder.