Articles of association are legal documents that establish the rules governing a business’s activities and describes the business’s purpose. All registered companies must have articles of association. The document details how responsibilities inside the corporation are to be completed, including the process for appointing directors and the management of financial records.
By law, every corporation must have articles, which are legally binding on the company and all of its members.
In this article, are articles of association legally binding, we take a look at these issues in more depth.
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The Articles of Association
All limited companies must have a set of articles of association, which serve as the company’s constitutional ‘rule book.’ The articles are submitted to Companies House along with the registration application, and should then be safely stored at the registered office of the business.
The majority of businesses make use of ‘model articles.’ This is the version by default required under the Companies Act 2006. However, it is possible to modify the standard model articles to meet your company’s specific requirements. Alternatively, you might construct a collection of articles that is entirely unique.
If you employ a company formation agent to incorporate your limited company, you will very likely be given the option of adopting the agent’s ‘model articles’ or uploading your own bespoke articles with your application to establish a new business.
Members and shareholders
The terms ‘member’ and ‘shareholder’ are interchangeable. Subscribers to the memorandum automatically become members upon the company’s registration, even if the firm fails to submit their names in the members register. Because not all businesses issue shares, the term ‘member’ is more suitable. All firms having shareholders or members are incorporated under the Companies Act 2006 and are required to subscribe to the memorandum and articles of organisation.
Who is entitled to what rights under the articles of incorporation?
The articles establish the members’ rights and the rules by which the directors must administer the business. The question arises as to who may enforce the articles’ rights. The articles confer rights on a company member solely in his or her role as a member. The Companies Act 2006 specifies the company constitution, binds the company and its members, and enables the company and its members to enforce covenants.
What is the purpose of the articles of association?
When a new company is created under the Companies Act 2006, it must have both articles of association and a memorandum of association.
The articles of association set forth the regulations for operating, regulating, and controlling the corporation, including the directors’ responsibilities and powers, as well as the extent to which shareholders have influence over the board of directors.
This is critical because it helps avoid internal conflicts and instils shareholder confidence in the board. For instance, articles of association can provide that directors cannot conduct specific acts without shareholder consent and that shareholders cannot make excessive demands of directors.
Articles of association are public records. If shareholders wish to supplement the articles of association without releasing more information to the public, they may create a shareholders’ agreement.
Is it possible to change the articles of association?
Businesses evolve and develop, and it is possible that after a period of time in business, your Articles will no longer be appropriate. If you have a legitimate reason to amend the Articles, you can usually do so by having the shareholders approve a ‘special resolution’ – one that has the support of at least 75% of the shareholders. This may be accomplished through a written resolution or at a shareholder meeting.
If you wish to amend your Articles by written resolution, you must notify Companies House within 15 days of the resolution being passed with a copy of the amended Articles and a copy of the written resolution. To amend your articles at a shareholders meeting, the directors must call one, disseminate the proposed special resolution, hold the meeting, and obtain the needed 75% approval. You then notify Companies House with the amended Articles and a copy of the special resolution.
Failure to deliver the amended Articles within 15 days constitutes an offence against the firm and its directors, which may result in a fine. However, the Articles will remain valid. Typically, before issuing a fine, the Companies House Registrar will send a notice requiring the necessary filing.
Are the articles of association capable of superseding the Companies Act?
The articles of association of a corporation are normally governed by the Companies Act. Despite this, firms have some flexibility and ability to change or remove certain provisions of the Companies Act. Additionally, businesses and their shareholders have the option of amending or submitting wholly new articles of association as the business matures, as well as entering into shareholders’ agreements to keep some arrangements private and out of the public domain.
Is there a distinction between the Memorandum of Association and the Articles of Association?
To incorporate a business, both Articles of Association and a Memorandum of Association are required. In comparison to the Articles, the Memorandum is fairly concise, describing:
- The company’s name and the year of incorporation
- Whether it is a limited liability company or a guarantee
- Who are the subscribers (members) and how many shares will each shareholder own? (must be a minimum of one each, if this is a share company)
- The Memorandum is pre-formatted, and you can obtain a template from Companies House. Subscribers must sign to indicate their desire to form a company.
Unlike the Articles, the Memorandum cannot be amended or updated over the life of the business. It is merely a ‘snapshot’ of the firm as it existed at the time of its formation.
Model articles of association vs. custom articles of association
If a company uses model articles of association, they’re given unlimited powers by default. However, if shareholders or the board of directors want to put restrictions on what the company has the power to do, they can write their own articles.
If a company writes its own articles, they need to send the articles in full to Companies House along with their application to form a company.
The full articles of association should cover:
- The powers, responsibilities, indemnity and insurance of the directors
- Details of how directors hold meetings, vote, delegate and handle conflicts of interest
- How directors are appointed and removed
- How records of directors’ decisions will be recorded
- Liability of members
- Details of members’ decision making and attendance at general meetings
- Distribution of dividends to members and stockholders
- How shares are issued, classed, and transferred
- Methods of communication
- Company seal
Companies House assess whether the proposed articles are appropriate or acceptable. If they decide that the articles are not suitable, Companies House can refuse to approve the formation of the company until the articles are amended.
Who is eligible to incorporate a company?
One or more individuals can start a business for any authorised purpose by putting their names to a memorandum of association. Individuals, corporations, and other legal entities are all considered ‘persons’ under law. Subscribers acknowledge their intention to form a corporation by signing the memorandum. A child under the age of sixteen lacks the legal capacity to enter into a contract. In general, if the registrar learns that the subscribers are under the age of 16, the application for incorporation will be denied.
Where do I obtain the required company formation documents?
When you register your business with a company formation agent, they will send you a copy of your memorandum, articles of association, and certificate of incorporation. These documents may be provided in digital format through email or in hardcopy format via postal mail. It is entirely dependent on the company creation bundle you purchased.
If you register your business directly with Companies House, you will immediately receive an automatic email including a digital copy of your certificate of incorporation.
How we can help
We have a proven track-record of helping clients with company formations and their articles of association. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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