If you want to start a business or are already a shareholder, you should know how the Articles of Association work. The Articles of Association are a contract between a company's shareholders and the company itself. They are a set of rules that govern how the business should be run. While the directors of a company do not sign the Articles, their duties as directors bind them to them during the operation of the company.
Articles of Association are required for all companies and are registered at Companies House when the company is formed. The Articles of Association, along with the Memorandum of Association, form the foundation of the company's "constitution."
The Articles do not have to take any particular form, but they must include certain provisions by law. In reality, most businesses are established using standard or 'model' articles created for this purpose and made available online. The model articles differ depending on the type of company being established.
The Articles cover the following topics:
- How are directors appointed and removed?
- How are new shares issued?
- How shares are traded and when you can compel someone to sell their stock
- How are board of directors and shareholder meetings organised and conducted?
So What Exactly Are The Articles Of Association?
Articles of Association are essentially a rulebook for how a company is run and create a contract between the company and its shareholders, similar to a shareholder’s agreement.
To form a company, you must first draught a set of Articles, which govern how the company should operate, primarily to protect the rights of the shareholders and the company itself.
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Why Do You Need Articles Of Association For Your Business, And What Happens If You Don't Have Any?
Articles are required by English and Welsh law (as well as many other common law jurisdictions) for a company to be formed as a legal entity. This is true whether you are forming a private limited company by shares or guarantee or a public limited company.
Articles are not required to be in any particular format, but certain provisions are required by law. Companies formed prior to October 1, 2009, may have used the standard articles known as 'Table A'. Legislation updated these articles, and companies formed after that date may use the standard 'model articles' outlined in the new legislation. On the government website, you can find sets of model articles.
If you do not select a bespoke set of Articles when forming a new company, it will be formed using the model Articles.
Many people starting businesses for the first time purchase a 'off-the-shelf' package, which means the company has already been set up using a pre-defined template and with generic subscribers. They then modify the Articles of Association and Memorandum of Association to reflect their own business needs and shareholdings.
You cannot form a company if you do not have Articles of Association.
What Information Must Be Included In The Articles Of Association?
Articles of incorporation must be contained in a single document and divided into consecutively numbered paragraphs.
The Articles cover five important topics:
- The fact that the shareholders' liability for the company's losses is limited to the nominal amount they paid for their shares, or the amount of their guarantee if the company is limited by guarantee. This is typically £1 per share or guarantor.
- How many directors will be appointed, what their powers and responsibilities will be, and how they will make decisions
- How many shares will be issued, what rights will be attached to specific shares, how shares will be issued and transferred, and how dividends will be paid
- How shareholders make decisions, how many people must be present for a meeting to be valid (the quorum), how votes are cast, and various other aspects of decision-making and voting
- Other administrative arrangements, such as how shareholders should be notified
A firm of corporate lawyers can help you draft or amend your articles of association and other constitutional documents.
Where Can You Find The Articles Of Association Of A Company?
Companies House is where you can find a company's Articles of Association, which are public documents that must be inspected by law.
What Are 'Model' Articles, And When Should I Avoid Using Them?
The law has established some standard templates of Articles of Association known as 'model' articles. This greatly simplifies the process of forming a corporation.
The model articles are not required; you can modify them to meet the needs of your company and as it grows. They are, however, a good starting point, and companies can be formed online in minutes.
When forming a company with bespoke Articles, you must submit a paper version, which cannot be done online. You send a copy of the Articles along with your other company formation documents, such as the Memorandum of Association, to Companies House.
Companies House has three types of model Articles available:
- private corporations with share capital
- private limited liability companies and
- public corporations
Model Articles may not be suitable for your business because they are designed to be a 'one size fits all' solution.
Model articles may not be appropriate if:
- You intend to create more than one share class.
- You must plan for alternate directors.
- You want a company secretary.
- You want to give existing shareholders pre-emption rights when new shares are issued.
- You want to send out notices and hold meetings online.
Even if the model Articles are appropriate, company owners may choose to remove certain provisions, such as to:
- Allow board meetings to be quorate when only one director is present.
- remove the chairman's right to a casting vote
- to permit directors to vote despite a conflict of interest
It’s always best to find a business lawyer to help you with anything like this and if you don’t have a business lawyer that you use on a regular basis then Mishoura can help you.
Specialising in connecting UK businesses and individuals with professional, experienced lawyers, they work tirelessly to ensure they can find the right lawyer for you – and all within 90 minutes.