Before you start a company — whether in Europe, the US, Africa, or Asia — you’ll sign or adopt something called the Articles of Association (or Company Constitution in some countries).
It sounds like boring paperwork. But it’s not.
It’s the DNA of your company — the document that decides how power, profit, and control are distributed among everyone inside your business.
If you don’t understand it, someone else will — and they might use it against you.
So, What Are the Articles of Association?
Think of the articles as your company’s internal rulebook.
It’s created when the company is formed and it tells you:
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Who runs the company (the directors)
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What shareholders can and cannot do
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How meetings and votes work
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How profits are distributed (dividends)
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How new shares can be issued or transferred
In short: it’s how the company lives, breathes, and makes decisions.
Who Writes These Rules?
Usually, when a company is incorporated, it adopts a model set of articles (like a government-approved template).
But smart entrepreneurs don’t stop there.
They customize them.
Why?
Because standard rules are written to “fit everyone,” not to protect you.
If you’re building a start-up with partners, investors, or family, you’ll want rules that reflect your reality — your expectations, your risks, and your trust level.
Example — Two Friends, One Problem
Let’s say Lina and Marco start a design company.
They agree to share everything 50/50.
At first, things go well.
Then one day, Marco wants to bring in his cousin as a new partner.
Lina says no — but according to their Articles of Association, Marco has the right to sell his shares freely.
Suddenly, half of Lina’s company could belong to a stranger.
And she can’t stop it.
That’s how the articles work:
if the rulebook allows something, it’s legal — even if it feels unfair.
Can You Change the Articles?
Yes — but it’s not easy.
Under most company laws (like the UK Companies Act 2006, section 21, or similar laws in other regions), you can change the articles through a special resolution — meaning 75% of shareholders must agree.
So, if you own less than 25%, you can’t block the change.
You have no veto.
That’s why minority shareholders (small investors or founders with a smaller share) often end up unprotected.
The majority can rewrite the rules anytime — and you can’t stop them.
Think About It Like This
Imagine playing a game where the majority of players can change the rules mid-game.
Would you ever feel safe?
That’s what happens in many companies when the articles are the only protection shareholders have.
When Articles Aren’t Enough
So, the articles are powerful — but also dangerous if you rely only on them.
They:
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can be changed by others,
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are public (anyone can read them online in most countries),
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and don’t always protect your personal agreements with other founders or investors.
That’s why, in modern business, entrepreneurs use another tool:
👉 The Shareholders’ Agreement.
It’s private. It’s contractual. And it gives you control the articles never can.
Why Founders Needed Something More
we saw that the Articles of Association are like the company’s constitution — official, public, and legally binding.
But there’s a catch:
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The majority can change the rules.
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The document is publicly visible (anyone can read it).
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It only protects you as a shareholder, not in other roles (like director or employee).
So entrepreneurs started asking a simple question:
“How can I protect my rights and agreements from being rewritten or exposed?”
Their answer?
➡️ The Shareholders’ Agreement.
What Is a Shareholders’ Agreement (in simple words)?
A Shareholders’ Agreement is a private contract between the people who own the company (the shareholders) — sometimes also signed by the company itself.
It doesn’t replace the Articles.
It completes them.
If the Articles are your company’s rulebook,
the Shareholders’ Agreement is your trust agreement.
It’s the invisible line between business and betrayal.
What Does It Usually Include?
Even though every company can design its own, here are the most common topics covered:
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Share Transfers – Who can sell, when, and to whom.
Example: If one founder wants to leave, the others get the first chance to buy their shares before outsiders.
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Decision-Making Power – What decisions need everyone’s agreement.
Example: Expanding to a new country or taking a large loan might need 100% approval.
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Dividend Policy – How profits are distributed (or reinvested).
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Director Appointments – Who can appoint or remove directors, and how.
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Non-Competition Clauses – Preventing a shareholder from starting a rival business.
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Dispute Resolution – What happens when partners disagree (mediation, arbitration, etc.).
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Exit Strategy – What happens if the company is sold, liquidated, or taken over.
Each clause is there to prevent chaos when emotions or money start to clash — which they always do.
Why It’s So Powerful
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It’s Private — Unlike the Articles, it’s not filed in public company registers. Nobody outside the group can read it.
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It’s Flexible — You can write almost any rule you want, as long as it’s legal.
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It’s Secure — It can’t be changed unless everyone (or a defined percentage) agrees.
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It Protects Relationships — Founders can add personal agreements, like:
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“We all must work full-time in the company.”
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“No one can take money out without approval.”
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“Decisions over marketing need all votes.”
These personal agreements often matter more than legal ones — they define trust.
How It Works Alongside the Articles
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The Articles are the public rules — visible to investors, banks, and regulators.
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The Shareholders’ Agreement is the private understanding — the one that keeps the founders united and safe.
They must not contradict each other, but they can cover different areas.
Think of it like this:
Why It Matters Globally
No matter where you start your company — in Europe, the Middle East, Asia, Africa, or the Americas — the logic is the same.
Laws may differ, but human nature doesn’t.
In every region:
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There are founders who trust too quickly,
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Investors who want control,
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and silent partners who get left out when things go wrong.
A well-drafted Shareholders’ Agreement is your insurance policy against that.
A Simple Example
Let’s imagine three founders — Ava, Kenji, and Rami — start a software startup.
At first, they trust each other completely.
But one day, Rami wants to sell his shares to a competitor.
Without a Shareholders’ Agreement, he’s legally free to do it (if the Articles allow it).
With a Shareholders’ Agreement, there’s a clause that says:
“Before selling, each founder must offer their shares to the others at the same price.”
That single sentence saves the company from falling apart.
In Simple Terms
A Shareholders’ Agreement is not about mistrust.
It’s about clarity before conflict —
so that when emotions rise, the rules stay calm.
Who Really Runs the Company: Directors vs Shareholders
Before we talk about agreements and protection, you must understand who has the real power inside a company — because not everyone who owns shares controls the company’s actions.
Let’s simplify it 👇
| Role | What they do | Type of Power | Example |
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| Shareholders | Own the company through shares | Ownership & voting power | Decide who sits on the board, approve big changes |
| Directors | Manage the daily business | Management power | Sign contracts, hire staff, buy/sell assets |
| The Company itself | Separate legal entity | Has its own personality | It owns property, not the shareholders personally |
👉 In short:
Even if you own most of the shares, you cannot act as if you are the company.
You control it indirectly, by voting and appointing directors — but they run the business day to day.
That’s why conflicts happen: sometimes directors act in a way shareholders dislike.
And that’s when agreements (and smart legal structures) become essential.
Q1: What is the main purpose of a company’s Articles of Association?
To act as the internal rulebook, deciding how directors, shareholders, meetings, and profits are managed.
To serve as a private contract between founders that is never visible publicly.
To replace shareholders’ agreements and control all private arrangements.
Q2: Why do entrepreneurs use a Shareholders’ Agreement alongside the Articles?
To create a private, flexible, and secure contract that protects founders’ rights and personal agreements.
To make the Articles publicly visible for investors and regulators.
To replace company directors’ powers with shareholder control over day-to-day operations.
Q3: Who runs the company’s daily operations, even if you own most of the shares?
The directors, who manage the business and act on behalf of the company.
The majority shareholder automatically, because they own most shares.
The company itself acts without any human management.
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