Articles of Association is a document that contains the rules by which a company is set up, run, governed and owned. These rules range from responsibilities of directors and shareholders, admission of new shareholders to voting, among others.
The Companies Act of 2015 provides a Model Articles of Association which all newly registered companies may use. It provides basic rules by which all companies may run by despite the industry the company intends to venture into.
However, the Model does not reflect current business practices and many companies, whilst in the course of running their business, have found the need to adopt a new model to suit new business trends, for example having company investors own a portion of the company while their investment is active.
Other trends include:
Recognition of a Founder Shareholder
Giving your employee ownership (in stock) of your company
Modifying your Articles of Association
1.Recognition of a Founder Shareholder
There may be different types of shareholders in a company. For this reason giving special recognition and specific rights to a shareholder who founded the company may seem to be the most equitable way of giving credit to the Founder. By giving Founders this separate recognition you may attach certain rights to it like giving them the Right to create a Trust for her/his dependent based on the monetary value of the shares they hold in the company.
A Founder Shareholder may be defined as a Shareholder who owns shares in the Company on the date of Adoption of the Articles.
2. Family Trust
This modification acts to allow a Founder Shareholder to transfer shares owed to him/her in the company to a family trust they have created for the benefit of persons who may be dependent on him/her.
3. Employee Shareholder
This is an employee of the company who has been allocated shares as an additional form of compensation.
At the time of Exercise of their stock option an Employee Shareholder may be classified as follows:
- Leaving Employee Shareholder
This is an Employee Shareholder who ceases to be a director or employee of the Company (other than by reason of death). As they leave, they cease to be a director of the company. - Good Leaver
Relates to a Leaving employee who became a shareholder and is now leaving employment for the following reasons:Retirement or incapacitation, Redundancy, Dismissal which was termed to be wrongful in a court of law or Leaves employment after a certain period of time. Sounds great right? Somebody who leaves with a clean slate and for a very reasonable fact. Such a person might choose to give up their shares or not. Depends on how you negotiate their exit. - Bad Leaver
This leaving employee, of course, is the exact opposite of what a Good Leaver is, and leaves employment for other reasons other than the four circumstances listed above.
Want to modify your Articles of Association to better fit the current business atmosphere, try our Startup Incorporation package.
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