In Nigeria, companies are required to have both a shareholders agreement and articles of association in place. A shareholders agreement outlines the rights and responsibilities of the shareholders, as well as the management of the company. On the other hand, the articles of association are the legal document that establishes the rules and regulations and the relationship between the company and its shareholders.
Despite the importance of these two documents, conflicts can arise between them, especially when certain areas overlap. This article aims to examine the common areas of conflict between shareholders agreements and articles of association in Nigeria.
One significant area of conflict is the issue of decision-making power. In some cases, the shareholders agreement may give the shareholders more decision-making power than what is stipulated in the articles of association. For instance, the shareholders agreement may outline specific voting rights that are not mentioned in the articles of association. This can cause confusion and disagreements when making important business decisions.
Another area of conflict is the issue of ownership and transfer of shares. Shareholders agreements may grant shareholders greater rights when it comes to the sale, transfer, or issuance of shares than what is stated in the articles of association. Such conflicts can lead to legal disputes when shareholders try to exercise their perceived rights.
Additionally, conflicts can arise regarding the terms of appointment and removal of directors. It is common for shareholders agreements to contain specific provisions that differ from those in the articles of association. For instance, the shareholders agreement may provide for the appointment of directors in a specific order, or it may outline strict criteria for the removal of directors. The divergence of provisions can cause confusion and disagreements when it comes to the management of the company.
To avoid conflicts between shareholders agreements and articles of association, it is essential for companies to ensure that both documents are consistent and complement each other. Both documents should be carefully drafted to avoid any overlapping or contradictory provisions.
In conclusion, the conflict between shareholders agreements and articles of association can have severe consequences for companies in Nigeria. It is crucial, therefore, that companies ensure that both documents are consistent and complement each other. Companies should reach out to legal professionals experienced in drafting and reviewing such documents to avoid such conflicts. By doing so, companies can ensure they operate smoothly, with minimal conflicts with their shareholders.