This article is authored by Tajriyaan Akram Hussain, Associate, Lead, Corporate Secretarial Department, and Wahid Anam Fidah, Associate, Mahbub & Company.
In Bangladesh’s growing corporate sector, one of the most consequential drafting decisions is often made with the least attention. While founders spend considerable time on tax planning, licensing and regulatory approvals, the Articles of Association (“AoA”) are frequently treated as a routine filing requirement or an area for cost-cutting. As a result, many companies begin life with Articles that appear complete on paper but do not reflect how the business is actually intended to operate.
That mismatch can become costly. Under the Companies Act 1994, the AoA operates as a binding framework between the company and its shareholders. It is not a mere filing formality; it is the company’s constitutional document, determining how decisions are made, who holds authority, how shares may be transferred and what happens when relationships break down. A poorly drafted AoA therefore creates more than procedural inconvenience. It creates legal and commercial exposure that may surface precisely when the company needs certainty most: during board disagreements, shareholder exits, deadlocks, financing transactions or disputes before the Company Court.
This article highlights common weaknesses in template AoAs and explains why careful, business-specific drafting is essential to reducing governance risk before it becomes a dispute.
Clauses That Are Too Narrow to Be Practical
A clause that looks harmless at incorporation can become a serious operational constraint once the company starts functioning. This is one of the most persistent problems with template AoAs: their operational clauses are often drafted so narrowly that they become unworkable as the company grows, or even during ordinary business operations.
Board Meetings and Notices
The practical weakness of many template AoAs becomes most visible when the board needs to act quickly. In practice, many AoAs contain clauses, much to the surprise of the founders, that require for board meetings to be held at the company’s registered office, without making sufficient provision for video conferencing, hybrid participation or resolutions by circulation. That approach no longer reflects how businesses operate. Directors may be based in different cities or abroad, and even local directors may be unavailable at short notice. A clause that fails to accommodate practical methods of decision-making is not merely inconvenient; it can become a tool for obstruction. A director seeking to delay or challenge a decision may argue that a meeting was invalid because it did not strictly comply with the procedural requirements in the AoA.
Delay can be just as damaging as an outright refusal to approve a decision. If the AoA does not permit shorter notice in urgent circumstances, time-sensitive decisions may be delayed even when all relevant parties are willing to proceed. The problem is compounded where the AoA also relies on outdated statutory references. For example, many AoAs of limited companies registered after 2020 still retain the former 14-day notice period for calling an AGM, even though the 2020 amendment to the Companies Act 1994 increased the minimum notice period to 21 days under amended Section 85. An AoA that continues to reflect the old position is not merely outdated; it may create uncertainty around the validity of proceedings convened under it, particularly where disputes arise between shareholders or directors.
Quorum Requirements and the Boycott Problem
A quorum clause can quietly shift power from the boardroom to the absent director. If the AoA requires all directors to be present for a valid meeting, any single director can effectively veto corporate action simply by staying away. A disgruntled director may use this to block the approval of accounts, prevent the calling of an AGM or stall other decisions the company is legally required to make. A practical AoA should therefore include an adjourned meeting provision: if quorum is not met at the first attempt, the meeting may be reconvened after a short waiting period and proceed at a lower threshold. This prevents statutory obligations from being held hostage by one person’s strategic absence.
Share Transfers: Keep Sensitive Terms Private
Share transfer clauses are where control, confidentiality and commercial reality often collide. In a closely held company, the entry of an outside shareholder can fundamentally change the management dynamic. Most private companies therefore want to restrict share transfers to outsiders. However, including detailed commercial terms such as valuation methods, exit mechanisms and rights of first refusal directly in the AoA creates a separate problem: the AoA is a publicly registered document and may be accessible to third parties. Sensitive commercial arrangements can therefore become part of the public record.
The solution is not to leave transfer controls vague, but to put each layer in the right document. The AoA should set out the constitutional framework: that transfers are restricted, that shareholders have pre-emption rights and that any transfer remains subject to the terms of a Shareholders’ Agreement (“SHA”). The commercial detail, including valuation mechanics, exit procedures, drag-along rights and tag-along rights, should sit in the SHA, which is a private contract between the shareholders and is not publicly registered. This keeps sensitive terms confidential while ensuring that the company’s constitutional position remains clear.
Defining the Limits of Management Power
Authority disputes often begin with language that appears broad, flexible and harmless. Generic AoAs frequently give directors or managing directors wide authority “to do all things necessary for the management of the company”. Without clear limits, that language may allow one person to commit the company to major transactions without proper approval. A modern AoA should therefore include a reserved matters framework, identifying actions that require special approval, such as the sale of substantial assets, the giving of corporate guarantees, the taking of significant debt, related-party transactions or changes to the company’s core business. Clear approval thresholds protect minority shareholders, reduce the risk of unauthorised commitments and make internal authority easier to enforce.
The Strategic Path to Corporate Stability
Many corporate disputes are seeded long before the first disagreement arises. A carefully drafted AoA helps define decision-making authority, quorum requirements, share transfer restrictions, dispute resolution pathways and the relationship between the AoA and any SHA. In a market where family-owned businesses, closely held companies and joint ventures are common, this early investment in drafting clarity is one of the most effective ways to build institutional trust and prevent future governance breakdowns.
