Articles of association are the legal documents that establishes the rules governing a business’s activities and describes the business’s purpose. The document details how responsibilities inside the corporation are to be completed, including the process for appointing directors and the management of financial records.
In this article, what are articles of association, we take a look at these issues in more depth.
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The Articles of Association
All limited companies are required to have a set of articles of association, which act as the corporation’s fundamental ‘rule book.’ The articles are submitted to Companies House with the application for registration and should thereafter be safely stored at the business’s registered office.
The overwhelming majority of firms utilise ‘model articles.’ This is the version that the Companies Act 2006 requires by default. However, modifications to the basic model articles are available to match your company’s unique requirements. Alternatively, you might create an altogether new collection of articles.
If you use a company formation agency to incorporate your limited company, you will very certainly be given the option of using the agent’s ‘model articles’ or uploading your own bespoke articles with your application to incorporate a new business.
What is the purpose of the articles of association?
Articles of association and a memorandum of association are required when a new company is formed under the Companies Act 2006.
The articles of association establish the rules for managing, regulating, and governing the corporation, including the directors’ duties and powers, as well as the amount to which shareholders have influence over the board of directors.
This is crucial because it aids in the prevention of internal conflicts and instils shareholder confidence in the board of directors. For example, directors’ articles of association can specify that they are prohibited from performing specified acts without shareholder authorization and that shareholders are prohibited from making undue demands on directors.
The articles of incorporation are public documents. If shareholders prefer to amend the articles of association without disclosing more information, they may do so through the creation of a shareholders’ agreement.
Is it possible to change the articles of association?
Businesses evolve and expand, and it is possible that your Articles will become obsolete after a period of time. If you have a legitimate reason to alter the Articles, you can usually do so by obtaining shareholder approval of a ‘special resolution’ – one that receives at least 75% of the vote of the shareholders. This can be done via written resolution or at a shareholder meeting.
If you want to alter your Articles through a written resolution, you must notify Companies House within 15 days after the resolution’s passage, providing a copy of the amended Articles and the written resolution. To alter the articles of incorporation at a shareholders meeting, the directors must convene one, distribute the proposed special resolution, hold the meeting, and secure the required 75% approval. Companies House is then notified of the modified Articles of Association and a copy of the special resolution.
Failure to deliver updated Articles within 15 days constitutes a criminal offence against the firm and its directors, punishable by fine. The Articles, on the other hand, will remain valid. Typically, the Companies House Registrar will send a notice demanding the requisite paperwork prior to issuing a fine.
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?
By signing a memorandum of association, one or more individuals can establish a business for any lawful purpose. Under the law, individuals, corporations, and other legal entities are all considered ‘persons.’ By signing the memorandum, subscribers confirm their intention to form a corporation. Under the age of sixteen, a minor does not have the legal competence to enter into a contract. By and large, if the registrar discovers that the subscribers are under the age of 16, the incorporation application will be dismissed.
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.
How to Contact our Corporate Solicitors
It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
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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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