Question 1

What is the difference between articles of association and a shareholders' agreement?

Accepted Answer

The **articles** are the company's public constitution; a **shareholders' agreement** is a private contract between the shareholders. They do different jobs and most companies with more than one owner need both.

**Articles of association.**

**Public** — filed at Companies House and readable by anyone.

**Bind the company and all members**, including anyone who acquires shares later, automatically.

**Amended by special resolution** — a 75% majority. So a shareholder with less than 25% cannot prevent changes.

**Cover constitutional matters**: share classes and rights, directors' powers and appointment, meeting and voting procedures, share transfer restrictions, and dividend mechanics.

Most companies adopt the **Model Articles** unchanged at incorporation, which are generic and frequently unsuitable for a company with several owners.

**Shareholders' agreement.**

**Private** — not filed, and its terms are not public. This matters commercially.

**Binds only the parties who sign it.** A new shareholder is not bound unless they execute a deed of adherence — which is why articles usually require them to.

**Amended only by unanimous consent** of the parties, unless it says otherwise. **This is the crucial difference**: it can give a minority shareholder genuine protection that the articles cannot, because it cannot be changed over their objection.

**Covers commercial matters between owners**: what decisions need unanimous or specified consent, dividend policy, funding obligations, what happens if a shareholder wants to exit, dispute resolution and deadlock provisions, restrictive covenants, and who may appoint directors.

**Why both are needed.** The articles do the things that must bind the world and be public; the agreement does the things you want private and unchangeable without consent.

**Where they conflict**, the position is complex — the articles generally prevail as the constitutional document, but the parties to the agreement may be in breach of contract for voting contrary to it. **Well-drafted documents are written to be consistent**, and inconsistency between them is a common and expensive drafting failure.

**What a small company most often lacks**, and later regrets: any provision for a founder leaving, deadlock between two equal shareholders, or a forced sale.

General information, not legal advice.

Question 2

What is an employee ownership trust?

Accepted Answer

A structure in which a trust holds a controlling stake in a company on behalf of all its employees, collectively and indefinitely — rather than employees individually holding shares. It has become a

Question 3

What actually matters in a term sheet?

Accepted Answer

Far less than the valuation, and far more than founders expect. A term sheet is mostly non-binding, but it sets the terms everything else follows from, and the economic and control clauses matter

Question 4

What are a company director's actual legal duties?

Accepted Answer

In the UK, seven duties are set out in statute — the Companies Act 2006 — and they apply to every director of every company, including a sole director of a small one who may never have read them. The

Question 5

What is the difference between taking salary and dividends as a company director?

Accepted Answer

They are legally different transactions, taxed differently, subject to different conditions — and the common advice to "take a small salary and the rest as dividends" is a simplification that depends

Question 6

What is the difference between a sole trader, a partnership and a limited company?

Accepted Answer

Whether the business is legally separate from you — and that single question drives liability, tax, admin and how you get paid. Sole trader. You are the business. No legal separation. Liability is

Question 7

What is a liquidation preference?

Accepted Answer

The right of certain shareholders — almost always investors — to be paid first when a company is sold or wound up, before ordinary shareholders receive anything. It is frequently the single most

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