Articles of Association: A Guide
When a company is registered at Companies House, it is incorporated with articles of association (Articles), written rules that regulate how that company is run and are designed to protect the interests of shareholders. Articles form a statutory contract between a company’s shareholders or guarantors, directors and company secretary (if it has one).
This article considers Articles for companies limited by shares incorporated post-2009.
What are Articles?
As explained above, articles govern the day to day running of a company and are a fundamental constitutional document (unlike the memorandum of association).
Companies can either use standard articles (known as ‘model articles’) (Model Articles) or draft custom articles (usually based on the Model Articles).
They can generally be found online in the ‘filing history’ of a company’s record at Companies House.
What form should the Articles take and what do they need to include?
Whilst no particular form is required, Articles must be contained in a single document and be divided into paragraphs numbered consecutively.
The principle matters that articles deal with are:
- The limited liability of shareholders.
- The extent of the directors’ powers.
- The number of directors and how they make decisions.
- The appointment and termination of company directors.
- The number of, type of and rights attaching to shares.
- The payment of dividends and other distributions.
- The powers of the company to issue new shares.
- How shares can be transferred.
- Decision-making by shareholders.
- The organisation and running of board and shareholders meetings.
- Administrative arrangements.
What are the Model Articles? Are they appropriate for us?
Model Articles are default articles aimed at making the process easier for those forming limited companies. They are in a form prescribed by the Companies Act 2006 (CA06), the form can be found on the Government website.
Amongst other things, the Model Articles make the following assumptions:
- That the company has unrestricted objects.
- That the company has only one class of shares.
- That the directors have authority to allot shares without reference to the shareholders, subject to the pre-emption requirements of under company law.
- That the directors have an absolute discretion to refuse to register a transfer of shares.
- That all of the company’s shares (other than those taken on incorporation) are issued fully paid.
- That the company has more than one director.
- That directors are not to be allowed to vote or participate on decisions in which they have an interest.
- That the company has a secretary.
- That the company does not have any subsidiaries and is not part of a wider group of companies.
Given the above assumptions, Model Articles may not suit your business needs. Even where the Model Articles are suitable, sometimes companies opt to remove certain provisions e.g. allowing directors to vote if they have a conflict of interest.
If Articles are not registered on incorporation, or to the extent that the Articles registered do not exclude or modify the relevant Model Articles, the Model Articles will apply.
Can Articles be changed?
The general rule is that a company may amend its articles by special resolution of the shareholders (i.e. agreed by at least 75% of shareholders). The company must send a copy of any amended articles along with a copy of the resolution to the Companies House within 15 days after the amendment takes effect.
Do Articles override the CA06?
Generally speaking, the CA06 overrules the Articles, but the CA06 also recognises that not all of its provisions will be suitable for all companies and so allows a company to include, vary or exclude certain of its provisions.
Do Articles override a shareholders’ agreement?
Articles will generally prevail in the event of a conflict between the Articles and a shareholders’ agreement. It is possible to provide in the shareholders’ agreement that should a conflict arise, then the shareholders and directors will act together to change the articles so that they confirm to the terms of the shareholders’ agreement, or to state that the shareholders’ agreement takes priority in any conflict.
Find out more about shareholders’ agreements here.
What happens the Articles are breached?
A breach of the obligations in the Articles will usually deem any actions taken contrary to them void or invalid.
Since the Articles are a contract between the shareholders and the company, a shareholder can also claim against the company if their rights as a member are breached or infringed.
If you would like further advice in relation to the amendment, interpretation or drawing up of your company Articles of Association, a member of our Corporate & Commercial team would be delighted to assist you.
Please note: sole directors of companies with modified or amended Model Articles should have their Articles reviewed to ensure that past and future decisions are valid and binding on the company.
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