What Are the Articles of Association?
Every UK limited company must adopt articles of association when incorporating with Companies House. These articles are internal legal documents that outline the rules, regulations, and procedures agreed upon by the company's directors and any persons of significance.
The articles function as a 'user guide' for running businesses, covering the directors powers, which essentially creates a contract between the company and it's shareholders. After incorporation, typically these documents will be submitted directly to Companies House and available on the Companies House website to view.
The regulations outlined in the articles vary from company type and from jurisdiction, for example the model articles are different for companies limited by shares and those limited by guarantee. However there are general foundational rules that are included for most companies.
Sections the articles of association cover:
- The powers and responsibilities of directors - this outlines the authority the director has as well as their limitations (for example limits on requiring shareholder approval on major company investments).
- Issuance and transfer of shares (companies limited by shares)- this will outline details surrounding amounts and types of shares issued, as well as the rights that are attached to these shares (for each shareholder). There will also be a procedure if the company wants to introduce any additional shares.
- Profit distributions and dividends - Rules will typically outline the legal framework for directors to recommend dividends, as well as for retaining the company profits.
- Appointing and removing directors - this covers how new directors can be appointed (how they are voted in) as well as the process for a directors removal/ resignation.
- Procedures for board meetings - Typically rules for annual general meetings (AGMs) and any other meetings are displayed in this. This includes the voting procedures and notice requirements.
- Administrative arrangements - This covers methods for administrative actions for example communication with the company members and how to keep record of company accounts.
- Closing down the company - Finally, a section covers what to do for the dissolution of the company, including the directors authority and actions that need to take place before being dissolved (for example notifying any creditors as well as finalising accounts).
What is the Difference Between the Articles of Association and Memorandum of Association?
Both the memorandum of association and the articles of association are documents that are included as part of a company's incorporation documents. People can often mix up these two documents and what there purposes are, as they are fairly similar:
Memorandum of Association - this is a legal statement which is signed by the company shareholders on the agreement to form the company. This includes the company's name and share capital and outlines company objectives.
Articles of Association - as well as outlining the company's objectives and directors, this covers more of the internal changeable rules of the company's operations, director's powers and shareholder's rights (internal management).
Why are the articles so important?
As a baseline, the articles of association are important for limited companies as they confirm legal compliance with Companies House. Since the documents act as a "company rule book" this helps to prevent any internal disputes as there are clearly defined procedures in how the company should act.
In addition, the articles of association give the company's shareholders protection by establishing their rights. Commonly, the limitations of the directors power requires the shareholders approval first. Shareholder rights also include "pre-emption" rights, which prevent share dilution and ensure the shareholder gets first refusal on new shares issuance.
Many of the articles of association provisions are imposed by the Companies Act 2006. All of these 'rules' must be followed and have legal force. Since a limited company cannot legally exist with the Articles of Association,
How do I obtain the articles of association?
Most model articles are available to view and download from Companies House, as these would have been submitted when the company was incorporated. This can be obtained through the 'Filing History' section of the website.
Limited companies should also keep physical copies of the articles at the company registered address.
Can I update my articles of Association?
Businesses change over time, so updating the rules for how businesses run may be necessary. This can either be done by adding and altering the current articles, or creating a whole new set of articles of association. Please note that the changes made will still need to comply with company law.
How These Can Be Updated
In order for new articles of association to be approved, a shareholder's vote will need to take place with at least a 75% majority. Once the vote is held and passed, a copy of the special resolution and the articles of association along with all the changes will need to be submitted to Companies House within 15 days.
In Summary
The articles of association are essentially a set of documents giving guidance for the company to follow after incorporation. These are separate from the memorandum of association, which essentially outlines the companies objectives with the details and the company and it's shares.
Please note the information in this article provides general oversite, however we are not able to offer any legal advice. If you would like to know more about the formation of your own articles of association and incorporation, it would be best to contact a specialised company formation agent or a lawyer.
