Articles of Association are rules and procedures that define how your company will be run and operated. Every UK private limited company must have Articles of Association. Companies Act 2006 makes this a legal requirement. The company must also have a Memorandum of Association. Together, the Articles of Association and the Memorandum of Association form the company’s constitution.
In simple terms, the Articles of Association include the rules according to which your company will operate. These rules cover a range of issues that are relevant to running the company. These include, but are not limited to:
- Director Appointments;
- Share issuance
- Share class rights
- Board meetings
- Shareholder decisions
- Procedures relating to board meetings and shareholder decisions.
From a legal perspective the Articles of Association contractually bind shareholders in the company to observe the rules of the company’s administration and operation. Directors are not subject to the Articles of Association if they are not shareholders in the company.
However, directors must observe their own legal and regulatory duties to the company (which are to ensure that the company is administered well and consistent with the Articles of Association) and may be subject to separate agreements with the company. In most small companies, directors are also shareholders and therefore will have to comply with the Articles of Association.
What is included in the Articles of Association?
Articles of Association include many standard provisions as provided by the UK government via the model Articles of Association. Typically new companies adopt the standard articles.
If you form a company with MachFast.com, the app will include standard Articles of Association when you are forming a company (you can also upload your own if you wish to do so).
Model Articles of Association cover the following operational and administrative topics:
- Directors’ responsibilities & powers
- Decision Procedures for how Directors make decisions (for example how to deal with conflicts of interest or how many Directors need to be present for a meeting. Of course if you have a 1-Director company this may be less relevant, but still important to have in the Articles).
- Director Appointments & Terminations– this is important particularly if you have more than one Director and your company will grow over time. Often new Directors may join and some Directors may leave. It is important to ensure that clear procedures are in place as to how this works.
- Issuing, distributing, buying back and cancelling shares – this is important as it will define how you can create more shares when you want to add a new shareholder or how a company can buy back shares from an existing shareholder. This is particularly important if there is more than one shareholder in the company and you intend to build & grow your business with outside financing.
- Shareholder decision making rules – this is important because these rules outline how you can make decisions as Shareholders (for example if your company wanted to issue new shares or modify Articles of Association)
- Administrative matters such as insurance etc…
In some cases companies may decide to create their own Articles of Association. As long as these articles comply with Companies Act 2006, you can have any type of Articles of Association that you want. We strongly advise that you get professional legal advice if you decide to draft your own Articles of Association. You want to make sure that anything you draft is legally compliant.
If you are using MachFast.com to create your company you may upload custom Articles of Association if you so choose.
In addition to the Articles of Association, what other documents do you need to set up a company?
In addition to the Articles of Association you will need a Memorandum of Association. This is a one-page document that is a statement that all the subscribers (shareholders) are happy to create the company.
If you are using MachFast.com to form the company, then the app will automatically create the Memorandum of Association. Unlike the Articles of Association, the Memorandum of Association can not be amended once the company is formed.
The Memorandum of Association will include the following information:
- The date of incorporation
- Company name
- Whether the company is limited by shares or by guarantee
- Names and signatures of all subscribers (in the case of MachFast.com, the signatures are electronic)
What are Share Certificates?
Share Certificates are documents issued by the company that confirm the share ownership on the shareholder who owns the shares. Please remember that the company must issue Share Certificates to all the shareholders within 2 months of issuing the shares.
The Share Certificate must contain the following information:
- a unique share certificate number
- the company’s name and company registration number
- the registered office address of the company
- the name of the shareholder
- the contact address of the shareholder
- the number of shares covered by the share certificate
- the type or class of shares
- the extent to which the shares are paid up (usually shares will be fully paid, but sometimes you’ll come across unpaid shares)
How can a company change the Articles of Association?
Shareholders may change a company’s Articles of Association at any time. To do this, the board of directors must resolve to call a general shareholders meeting to agree a resolution to amend the Articles of Association.
At least 75% of shareholder votes must approve the proposed changes to the Articles of Association. After the articles are amended, the new Articles of Association have to be filed with Companies House within 15 days.
We strongly advise that you seek legal counsel when amending your Articles of Association to ensure that everything is done properly.
Where should we keep a copy of the Articles of Association?
You must keep a copy of the Articles of Association at the registered office or a ‘ single alternative inspection address’. Companies House keeps a copy of the Articles of Association. Normally you will be able to download the articles directly from the Companies House website.