Every Kenyan company has Articles of Association. Far fewer have a shareholders’ agreement, and many founders assume the two do the same job. They do not, and knowing which document actually controls a given situation matters the day two shareholders disagree.
Articles of Association: public, statutory, and binds everyone
The Articles are filed with the Registrar of Companies under the Companies Act 2015 and are a public document, anyone can inspect them. They bind the company and every member as if each had signed a contract with the company on those terms. They typically cover the mechanics the Act expects a company to have settled: how shares are issued and transferred, how directors are appointed and removed, and how general meetings are called and voted on. Because they are public and relatively rigid to amend (a special resolution, generally a 75 percent majority, is needed to change them), most companies keep them close to a standard template rather than negotiating bespoke commercial terms into them.
A shareholders’ agreement: private, contractual, and flexible
A shareholders’ agreement is a private contract between the specific shareholders who sign it, and sometimes the company as well. It is not filed anywhere public and does not need to be disclosed to a competitor, a new hire, or anyone else browsing the company register. This is where the commercially sensitive terms actually belong: what happens if a shareholder wants to sell, whether the others get first refusal, drag-along and tag-along rights on an exit, how a deadlock between equal shareholders gets resolved, dividend policy, and which disputes go to arbitration rather than court.
What happens when they point in different directions
The Articles govern the company itself and bind third parties dealing with it, including a new investor who was never a party to your shareholders’ agreement. The shareholders’ agreement only binds the people who signed it, as a matter of contract, not company law. In practice this means an act that is valid under the Articles can still be a breach of the shareholders’ agreement, giving the wronged shareholder a contract claim for damages or an injunction, without necessarily being invalid as a matter of company law. Well-drafted agreements avoid this gap by requiring the Articles to be amended to match the shareholders’ agreement wherever the two would otherwise conflict.
Which one do you actually need first
You cannot register a company without Articles, so that decision is made for you, usually by default model articles unless you actively customise them. A shareholders’ agreement is optional, which is exactly why so many small companies never get one, right up until two shareholders disagree about something the Articles never addressed. If there is more than one shareholder with a real stake in the outcome, the shareholders’ agreement is usually the document doing the actual work of protecting everyone’s position.
