Articles of Association: start-up business multiple investors
Articles of Association for an investment in a start-up company by multiple investors.
As part of an investment transaction by investors in a private limited company, the investors will likely require that the company adopts new Articles of Association.
What will Articles of Association for a start-up investment cover?
The typical matters covered in the Articles of Association for an investment in a start-up company include:
- allotment of shares: pre-emption rights for existing shareholders on the allotment of further new shares
- transfer of shares: provisions governing the transfer of shares in the company. As a start-up company, share transfers are likely to be more restricted than transfers of shares in an established business. This may include a restriction on the founder voluntarily transferring shares to a third party or to family members without the consent of the investors
- good and bad leaver events: if the founder leaves the company, then the Articles of Association will usually provide for a compulsory transfer notice to be given in respect of the founder’s shares. For a start-up company, this might be for all of the founder’s shares, especially where the founder is a bad leaver or, even if a good leaver, if this happens in the first few years
- tag-along and drag-along rights, with the investors having the right that the investors must voluntarily participate in any transaction which triggers the drag-along rights
- director: a right for the investors to appoint a director
- proceedings of directors: the quorum for any meeting of the board of directors must include the investors’ appointed director
- shareholder meetings: the quorum for any meeting of shareholders must include the investors
About these Articles of Association
These Articles of Association are for an investment transaction for a start-up business where a more than one investor is investing in return for ordinary shares in a private limited company.
The Articles of Association contain relatively strong protective rights for the investors, some of which will be a matter of negotiation between the parties.
The rights of the investors are exercisable by investors holding a majority of the shares held by all of the investors.
- pre-emption rights on the allotment of new shares
- provisions relating to the transfer of shares, including:
- permitted transfers to defined classes of permitted transferees
- pre-emption rights on the transfer of shares to third parties
- compulsory transfer on a shareholder (excluding an investor) ceasing to be employed or breaching the shareholders agreement
- tag-along and drag-along rights
- regulation of board and shareholder meetings
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