Shareholder’s Agreement and Articles of Association: A Power Struggle

The cooperation between Articles of Association and Shareholder’s Agreement forms the basis of an investors’ engagement with a corporate entity. While the Articles lay down what the company can and cannot do, the Shareholder’s Agreement binds the company to the investor and assigns the various rights and duties it has with respect to each other. When engaging with the company, the investor hopes to be a part of the management of the company and also be able to freely transfer the shares it has been allotted. While it may sound so simple, it isn’t. Several of the key rights that the investors wants are incorporated in SHA, but it is common observance that the Articles may not have specific provisions for granting the same. Further, with advent in contractual terms and nature of deals, SHAs also tend to contain provisions that are not addressed in the Companies Act itself. Therefore, the enforceability of SHA is put under question.