Different legal documents should be prepared based on the type of business structure you decide on for your business. If you decide on incorporating a company, these are the legal documents you should have.

  1. Company Constitution
  2. Shareholders’ Agreement

 

Company Constitution

This document is a legal document between the company and all of its shareholders. It sets out the objects and powers of the company. This document is required at the point of incorporation. In layperson’s terms, this is essentially the rule book of the company. When shares are transferred from one shareholder to another, the new shareholder is bound by the company constitution as he or she takes all the obligations as well as the benefits that the shares come with.

In some companies, the Company Constitution is referred to as the Memorandum and Articles of Association. These are two separate documents. The Memorandum of Association sets out the company’s structures as well as its aims. Whereas the Articles of Association specify the regulations for how the company is to operate. These include processes for holding general meetings and appointing directors. Collectively, they are referred to as the Company Constitution.

 

Shareholders’ Agreement

This document is a legal document that binds only the shareholders who are party to the agreement (i.e. those who sign the agreement). Shareholders who are not party to the Shareholders’ Agreement are not bound by the terms of the agreement. This agreement may sometimes be referred to as stockholders’ agreement. The agreement describes how a company should operate in relation to the shareholders’ shares. It also outlines shareholders’ rights and obligations and it should protect these rights. The Shareholders’ Agreement allows certain safeguards to be put in place to protect minority shareholders as well as guidelines as to how future shareholders can come on board in the future. Important and usual clauses in a Shareholders’ Agreement may include things like restrictions on share transfers, pre-emptive rights for existing shareholders and distribution of sale proceeds if the company is sold.

 

While it is compulsory to submit the Company’s Constitution at the point of incorporation, it is not required that there needs to be a Shareholders’ Agreement for a company. However, we advise that there should be one as this would minimise future disputes.

If you need assistance with your Company’s Constitution or Shareholders’ Agreement, you can reach out to the Raffles Corporate Services Client Support team at [email protected].

 

Yours sincerely,

The editorial team at Raffles Corporate Services