What are Articles of Association?
Articles of association, also called ‘articles’, create a contract between a company and its shareholders, and are a set of rules for the running of the company.
What are included in the Articles of Association?
The articles are divided into numbered paragraphs in a single document. The articles cover the following areas:
- limited liability of shareholders
- directors – number of directors, their powers, and responsibilities and procedures for decision making
- shares and dividends – rights attaching to particular shares, issues and transfers of shares, and payments of dividends
- decision making by shareholders – quorum and voting at general meetings of shareholders and various decision-making options.
Does my company need Articles of Association?
Every company formed in England and Wales needs to have articles to be legally formed.
All companies incorporated on or after 1 October 2009 may adopt the standard ‘Model Articles’ prescribed in the Companies Act 2006.
What are Model Articles?
Model Articles are available in the following forms:
- private companies limited by shares
- private companies limited by guarantee
- public companies.
Model Articles are widely applied and are suitable to many companies.
Should Model Articles be changed?
The Model Articles may be tailored to suit the company. Common reasons for changing the Model Articles include:
- a board meeting of the directors is required to be quorate where there is just one director
- a casting voting by the chairman of a board is not wanted
- conflict provisions which prevent a director from voting if he or she has a conflict of interest needs to be removed
- there is to be more than one class of share
- there is a requirement for pre-emption rights on allotment of shares – pre-emption rights are rights for existing shareholders to protect them against dilution of their shareholdings by having first refusal on the issue of new shares.
Where are the Articles of Association kept?
All companies are required to have their articles filed at Companies House as public documents.
The company’s articles should also be kept at its registered office.
Articles of Association and Memorandum of Association – what is the difference?
Both the articles and the memorandum of association (memorandum) are essential documents to forming a limited company. The memorandum is now a short document setting out few details:
- company name and date of incorporation
- whether the company is limited by shares or guarantee
- names of the subscribers to the memorandum forming the company and, in the case of a company limited by shares, the number of shares taken by each shareholder which is to be a minimum of one share each.
The memorandum cannot be amended or updated during the lifetime of a company.
Shareholders’ Agreement and Articles of Association
A shareholders’ agreement is an agreement between some or all of the company’s shareholders.
As the articles are a public document, the shareholders’ agreement can confidentially provide for the roles, rights and obligations of the shareholders. The shareholders’ agreement complements the articles to protect shareholders’ interests and to deal with any disputes among shareholders ensuring smooth running of a company’s business.
How are Articles of Association changed?
A company changes its articles by obtaining an agreement of its shareholders by passing a ‘special resolution’.
A special resolution (one requiring agreement of at least 75% of the shareholders) to change a company’s articles can be passed as:
- a written resolution signed by the shareholders
- a special resolution passed at a meeting of the shareholders.
The written resolution is probably the most common way of changing a company’s articles.
Changing articles by way of a written resolution requires:
- shareholders to sign the written resolution to change the articles
- attach a copy of the new or amended articles to the written resolution
- send both documents to Companies House within 15 days of the resolution being signed.
To change articles by special resolution at a meeting of the shareholders requires:
- holding a meeting of the board of directors to arrange calling of a ‘general meeting’ of the shareholders to circulate the proposal to change the articles
- hold the general meeting at which the resolution to change the articles will be passed by a voting majority of at least 75% of shareholders
- the directors then note that a special resolution has been passed and that they have decided to send it with the new articles to Companies House
- a certified copy of the special resolution, along with a copy of the new articles is to be sent to Companies House within 15 days of the general meeting at which it is passed.
Failure to send the changed articles to Companies House within 15 days amounts to a criminal offence committed by the company and its officers, and can be punishable by a fine. However, it does not alter the validity of the articles. The Registrar of Companies House has the power to give notice to a defaulting company to rectify the filing within 28 days before resorting to any criminal proceedings.