Why Corporate Governance Experts Recommend specially designed articles of association for your Start Up

Introduction

The articles of association (AoA) are basically regarded as the “constitution of a company.” They outline the rules and regulations that stipulate a company’s internal affairs. The articles of association are also considered a user’s manual for an organization that states the purpose of the organization and its strategies to accomplish its short-term and long-term goals.

Section 13 of the Companies Act of 2015 provides that a person who wishes to register a company shall lodge with the Registrar—

1. an application for registration of the company
2. a memorandum of association of the company; and
3. a copy of the proposed articles of association.

The articles of association of a company are required to; be contained in a single document, be printed, be divided into paragraphs numbered consecutively, be dated; and be signed by each subscriber to the articles.

Model Articles of Association

Part 3 of the Act provides that the regulations may prescribe model articles for companies. Different versions of model articles may be prescribed for different descriptions of companies. The Companies Act of 2015 prescribes three types of model Articles;

• Private companies limited by shares
• Private companies limited by guarantee and
• Public companies

Important features in articles of association

Some of the salient clauses to include in an Article of Association, depending on the type of company, include;

1. Transfer of Shares – the procedure of transferring of shares by director(s) or shareholders has to follow a process that is enclosed on the Article of Association. For example, any member wishing to transfer their shares will need to give a notice in writing, a price of the shares needs to be agreed upon.
2. General Meetings – you can set the minimum quorum of members that requires for a general meeting to take place.
3. Voting Rules – every director(s) or shareholder(s) are entitled to one vote for every share they hold.
4. Numbers of Directors – the number of directors shall not be less than two [2] and, shall not exceed seven [7].
5. Add/Remove Director – the article of association explains the threshold of removing a director from the company.
6. Winding up – If you are looking to close your business, the article of association will give you directions on the process that you will need to follow within the law.
7. Arbitration – if there is any disputes or differences between directors or shareholders on company matters, then an arbitrator will be appointed to resolve the issues.

Because model Articles are designed to be a ‘one size fits all’ solution, they may not suit your business.  Whereas you may choose to adopt the Model Articles in their entirety, it is much more preferable to have a lawyer draft bespoke set of Articles which might incorporate some provisions from the Model Articles, allow for inclusion of terms that are specific to your company, and excludes other provisions that may be unsuitable.

Specially designed articles of association, in contrast to the model articles may permit you to:

• create more than one class of share in the articles
• the articles may be redesigned to allow for alternate directors
• the articles may also give room to create space for a company secretary

• The redesigned articles can also include clauses to avoid deadlock situations for instance the chair can have a casting vote.

• The articles may also provide for the rights of pre-emption which basically is the right of first refusal to existing shareholders whenever new shares are issued
• On notices and meetings, the advancement in technology as brought about post the COVID-19 pandemic allows for remote and virtual meetings, a clause that is not yet reflected in the model articles but one which you can resolve to have included in the specially designed articles.

In the alternative, company promoters may as well choose to remove certain provisions from the model articles such as:

• allow board meetings to be quorate when there’s just one director
• to allow directors to vote if they have a conflict of interest

Conclusion

While Model Articles may be readily available for adoption and therefore seem convenient in the instant, they may not cater for the unique needs or provide suitable solutions to meet your Company’s needs. It may be necessary, therefore to consider specially designed Articles of associations to match your Company’s requirements.

How can we assist you?

At Netsheria International, we have an experienced team of lawyers who can offer you legal assistance in drafting and specially redesigning your articles of association for your business. Please contact us for our services at info@netsheria.com or visit our website at https://netsheria.com/ for more information on our services.