There is a real purpose to both.
This explains the differences between Shareholder Agreements and Articles of Association.
Not having a Shareholder Agreement is too often an invitation to pain down the road. But do companies need bespoke articles as well?
All companies are formed with a bland one size fits all set (Model Articles).
KEY DIFFERENCES
Articles of Association (AA) are the company's constitution. They're a public document. They bind the company and all shareholders (including future ones) automatically, and third parties rely on them. They govern things like different share classes, directors' powers, board meetings, voting thresholds, and how shares are issued or transferred.
A Shareholder Agreement (SHA) is a private contract between the specific people who sign it. It's not public, it doesn't automatically bind new shareholders and it binds only the parties to it.
WHY AMEND ARTICLES?
The outside world only sees the articles. A buyer of shares, a lender, new director looking won't know what the SHA says. If something needs to be enforceable against the company, or bind future shareholders automatically, it has to be in the articles.
Some protections work best if they're in the articles. For example, restrictions on transferring shares, pre-emption rights, or weighted voting rights are more robust in the articles.
Entrenchment. Articles can include "entrenched" provisions requiring a higher threshold (even unanimous) to change certain clauses for example giving minority shareholders greater protection.
Automatic. If shares are transferred or issued to someone new, the articles bind them the moment they become a shareholder. A SHA does not.
Consistency. If the SHA says one thing and the articles say another, the articles usually govern for company-law purposes, and the inconsistency can cause real problems.
SO WHY NOT JUST ARTICLES?
Privacy. The SHA can contain commercially sensitive terms (valuations, exit mechanics, founder vesting, deadlock provisions, drag/tag details, non-compete, restraint) that shareholders don't want visible on the public register.
Flexibility. A SHA can be more easily changed by agreement.
Personal obligations that don't belong in a constitution. Things like restrictive covenants, non-compete, drag-along/tag-along triggers with specific commercial pricing formulas, funding commitments, are contractual and not always appropriate in a public document.
Remedies. Breach of an SHA can trigger contractual remedies (damages, specific performance, put/call options) that go beyond company law remedies.
ARE BOTH NEEDED?
In most cases, yes. The typical approach is: put the fundamental, structural protections in the articles (especially anything that needs to bind third parties or survive future share transfers), and put the commercially sensitive terms in the SHA.
ALEXANDER BUSINESS LAW SOLUTIONS are lawyers for business drafting and advising on both Shareholder Agreements and bespoke Articles.