Articles of association are one of the charter documents providing for, inter alia, management of a company, its shareholders and other matters governing the relationship amongst shareholders and the company. As per Section 10 of the Companies Act, 2013, articles of association, when registered, bind the company and its members to the same extent as if they had been respectively signed by the company and by each member, and contained covenants on their respective parts to observe all the provisions contained in the articles. As such, any action undertaken by a company and its shareholders cannot be inconsistent with a company’s articles of association.
In this context, this article aims to analyze provisions relating to restrictions upon transferability of shares as agreed upon in shareholder agreements and the need for incorporation of such restrictions in the articles of association of the respective company.
Shareholder Agreements vis-à-vis Articles of Association
Shares are movable property, capable of being transferred, subject to reasonable restrictions under the Companies Act, 2013 and other contractually agreed restrictions such as put options, call options, buy-back clauses, affirmative votes and pre-emption rights, as usually incorporated in a shareholders’ agreement. However, in order for any share transfer restrictions to be valid and binding on the shareholders and the company, such restrictions need to be validly incorporated within the articles of association of a company.
Tatva Legal, Hyderabad has an experienced team of corporate lawyers who, amongst other services, advise on a wide range of issues in relation to corporate legal consultancy and mergers & acquisitions, private equity and joint ventures.
Read More : https://tlegal.com/blog-details/shareholder-agreements-and-the-articles-conundrum