Digitisation of incorporation has facilitated the use of templates during the incorporation process such that articles of association is more or less standard for most companies.
I personally believe that this may not necessarily be ideal for all companies. Especially family-owned businesses. I do not believe in a “one size fits all “governance structure, but would advice for carefully drafting an articles of association that not only complies with the law, but also fits the unique needs of the company.
The e-citizen platform provides options for an applicant when choosing the type of governance model for the company. One of the options is to adopt the template provided by the system, or to upload your own articles of association.
While the template version may be ideal for simpler forms of companies, it may not be ideal for more complex entities with unique governance needs.
Certain entities like family-owned businesses which have unique governance needs, may need to adopt their own articles of association.
They need to carefully think through the governance model so as to provide for the most ideal structure and avoid disputes.
The templates provide certain provisions that may not be ideal for succession planning in a family-owned business. They provide a mechanism for unfettered transfer of shares and unfettered transmission of shares.
The template articles provide that any shareholder may opt out of the company by selling his shares independently. For a family-owned business, this may not be an ideal provision in the articles as it gives to the beneficiaries unfettered freedom to sell their shares to external parties, such that the company ceases to be a family-owned business.
Research has shown that one of the leading causes of disputes in family-owned companies, is disputes on maintenance of legacy and vision. It is every founder’s dream for the family-owned company to have a long legacy and to be maintained within the family.
For a family-owned business, I advise for a careful thinking through the transfer of share clause. The transfer of share clause ought to be limited to family members only. If one wishes to opt out of the family business, then they ought to sell their share to other family members and not external parties.
The transmission of share clause in the template articles, provides that a share will be transferred to a family member therefore taking the pattern of the succession laws which allow participation of spouses, children and so on without considering suitability.
I advise for a well thought out transmission clause as the transmission clause is what will aid or destroy corporate succession planning.
I feel that the transmittee should be a named person who has been accepted by the existing members. This identification can be done through a will where the share in the family business is bequeathed to a known beneficiary. Doing this will help the rest of the members to train the incoming member and prepare him or her for their new role.
When the beneficiary of a share in a family business is not known or named, there is a risk of the dispute becoming subject to bitter inheritance and succession battles.
Ms Mputhia is founder of C Mputhia Advocates. Email:Â [email protected]
