The Companies Act 2008 introduced the key concept that a provision in a shareholders agreement that is inconsistent with the Companies Act and the company’s memorandum of incorporation (MOI) is void to the extent of the inconsistency. This was an about turn from the position under the previous Companies Act and the previous practice of shareholders including a number of substantive provisions in a shareholders agreement with little regard to the company’s memorandum and articles of association.
There was a transitional period which allowed shareholders to get their arrangements in order to comply with the Companies Act 2008, but this expired on 30 April 2013.
Over the two years since the transitional period has expired, many companies have not yet adopted a new MOI (to replace its erstwhile memorandum and articles of association) nor amended their shareholders agreements to remedy any inconsistencies between the two documents.
Frequently seen inconsistencies include:
- the appointment of directors;
- higher voting thresholds for particular matters;
- who can elect the chair of shareholder or directors meetings and whether that chair has a casting vote;
- the quorum for shareholder and director meetings;
- the weighting of votes cast; and
- minority protections in general.
If there are inconsistencies between a company’s shareholders agreement and its MOI and the Companies Act, important shareholder rights (in particular those of minority shareholders) may be diminished and even lost.