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Articles of Association
Investing in a company will typically require the company either to adopt new Articles of Association or to amend its current Articles of Association. Their form and content will depend on the company’s ownership structure and number of investors.
Articles of Association to be adopted at closing of an investment in an established business by multiple investors. Intended to accompany the Shareholders Agreement, these Articles balance the rights of the investors with the rights of the founders.
Articles of Association to be adopted at closing of an investment in an established business by a single investor. Intended to accompany the Shareholders Agreement, these Articles balance the rights of the investor with the rights of the founders.
Good and bad leaver compulsory share transfer clauses for inclusion in the Articles of Association of a private limited company, acting as a mechanism under which the company can require a departed employee to sell shares back to the company or to other shareholders.
Pre-emption rights on the allotment of new shares, giving existing shareholders the right of first refusal on a proposed issue of additional shares in the company. In the form of standalone paragraphs to be included in the company’s Articles of Association.
Pre-emption rights on the transfer of shares, giving existing shareholders the right of first refusal on a proposed transfer of issued shares in the company. In the form of standalone paragraphs to be included in the company’s Articles of Association.
Articles of Association for a start-up company to be adopted at closing of an investment by multiple investors. Intended to accompany the Shareholders Agreement, these Articles containing relatively strong protections for the investors.
Articles of Association for a start-up company to be adopted at closing of an investment by a single investor. Intended to accompany the Shareholders Agreement, these Articles containing relatively strong protections for the investor.
Tag-along and drag-along rights, in the form of standalone paragraphs to be included in the company’s Articles of Association.
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What will the Articles of Association for an investment transaction cover?
Unlike the Shareholders Agreement, which remains confidential between the company and its shareholders, a company’s Articles of Association are filed at Companies House and available to the public. For this reason, confidential terms are usually confined to the Shareholders Agreement. Nonetheless, certain issues are commonly included in new or revised Articles of Association adopted at closing of the investment transaction.
These typically include:
- issue of shares: pre-emption rights for existing shareholders on a proposed issue of new shares in the future
- transfer of shares: provisions governing share transfers, including:
- permitted transfers: circumstances in which share transfers may be permitted, such as to family members and members of the same corporate group
- pre-emption rights: rights for existing shareholders to acquire shares prior to their transfer to a third party
- compulsory transfer: instances in which shares may be compulsorily acquired, including in case a founder shareholder or employee shareholder ceases to be employed, whether as a good or a bad leaver
- tag-along rights
- drag-along rights
- directors: rights for the investor(s) and other shareholders to appoint directors
- board proceedings: provisions concerning the conduct of board meetings, including voting rights and quorum requirements
- shareholder meetings: provisions relating to the conduct of shareholder meetings, including voting rights and quorum requirements
- preferred share rights: if investors receive shares with preferred rights over ordinary shares, these rights are included in the Articles of Association. Such rights might include:
- dividend: prior right to dividends
- liquidation preference: prior right to receipt of proceeds from a company sale or liquidation
- conversion: right to convert preferred shares into ordinary shares at a defined conversion rate
- anti-dilution: right to receive either additional preferred shares or to adjust the conversion rate of preferred shares, triggered by a future issue of ordinary shares below a specified price
- director: right for the holder(s) of preferred shares to appoint a director
- consent matters: right for the holder(s) of preferred shares to consent to certain specified matters
