Three clauses most often skipped when forming a company
Articles of association are usually copied from a template. Most disputes that surface years later grow out of that copy.
By: Can Karadavut
For most entrepreneurs, forming a company is a formality to be got through quickly. The articles of association are taken from a template, registered with the trade registry, and business begins. The problem becomes visible years later, when the first serious disagreement arises between shareholders.
1. How shares may be transferred
In a limited liability company share transfers are as a rule subject to general assembly approval; in a joint-stock company they may be restricted by a provision in the articles. Where this is not addressed, one shareholder may transfer their shares to anyone, and the others may wake up in partnership with a stranger.
Points to regulate: pre-emption rights, the majority required for a transfer, how the transfer price is calculated.
2. What happens in a deadlock
In two-shareholder companies with a fifty-fifty split, the general assembly cannot pass resolutions when the shareholders disagree and management stalls. The law points to dissolution for just cause — but that means the end of the company.
Possible solutions in the articles: a casting-vote mechanism, an arbitration clause, a buy-out procedure.
3. Non-compete and confidentiality
Without a clause preventing a departing shareholder from carrying on the same business, the statutory limits are narrow. A non-compete drafted within reasonable limits as to duration, geography and scope is the clause that proves most useful at the moment of separation.
Amendments not registered
Amendments to the articles cannot be asserted against third parties unless registered and announced with the trade registry. A protocol signed between shareholders but never registered usually produces no effect externally.
This article is for general information only and does not replace legal advice on a specific matter.