When Shareholders’ Agreements Conflict With A Company’s Articles: Practical Lessons From Maltese Law

Although shareholders’ agreements are widely used in Maltese corporate structures, conflicts between these agreements and a company’s Memorandum and Articles of Association are not uncommon. When this happens, the legal consequences may be less intuitive than many shareholders expect.

Under Maltese law, even where a company is itself a party to a shareholders’ agreement, the validity of corporate acts continues to be assessed primarily by reference to the Memorandum and Articles of Association. This means that a corporate decision taken in accordance with the Memorandum and Articles remains valid, even if it breaches the shareholders’ agreement. In such cases, the affected party’s remedy lies in contract, not in challenging the validity of the corporate act itself.

In practice, shareholders’ agreements often attempt to address this risk by including clauses stating that the agreement is to prevail in the event of inconsistency with the Memorandum and Articles. While these clauses can create contractual obligations between the parties, their legal effect is limited. They typically require the parties to take steps to amend the Memorandum and Articles to remove the inconsistency, but until such amendments are formally adopted in accordance with the Companies Act, the Memorandum and Articles continue to govern the company’s affairs.

This legal framework highlights the importance of consistency between the two instruments. Key governance provisions, such as veto rights, board composition and reserved matters, are often mirrored in both the shareholders’ agreement and the Memorandum and Articles of Association. Confidential or commercially sensitive matters, as well as exit mechanics, on the other hand, are usually retained solely in the shareholders’ agreement.

Another important consideration is the position of future shareholders. Unlike the Memorandum and Articles of Association, shareholders’ agreements do not automatically bind persons who subsequently acquire shares in the company. Unless new shareholders formally accede to the agreement, they will only be bound by the Memorandum and Articles. This creates a further incentive to ensure that essential governance provisions are adequately reflected in the company’s constitutional documents.

Ultimately, shareholders’ agreements are best viewed as a complement to, rather than a replacement for, the Memorandum and Articles of Association. When carefully drafted and properly aligned, both instruments can work together to provide an effective and flexible governance framework. When they are not, the Memorandum and Articles will continue to prevail, with any dispute resolved through contractual remedies rather than company law.

This article was first published in the ‘Sunday Times’ on 03/05/2026. Part 1 of this article was published last week.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.