There are many legal hoops to jump through for someone who wants to incorporate their business and trade as a company limited by shares. One of those hoops is the adoption of a set of articles of association.
What are they?
The articles of association are the constitution of the company and, by conferring upon the company a distinct legal personality, the articles are the operating manual of the company.
Every company’s articles of association are a public document and are available for anyone to view by searching the relevant records at Companies House.
There are template articles, called Model Articles, that can be adopted by any company on incorporation. However, as with any template, the Model Articles should be amended, tailored and disapplied (where appropriate) to the bespoke requirements of each company.
Do you need them?
Every company must have a set of articles of association. Indeed, a certificate of incorporation will not be granted to a company without a set of articles ready to be adopted.
The extent to which the Model Articles can be used and when bespoke articles need to be created will vary on a case by case basis, but the Model Articles are so broad that there are certain gaps that will need to be filled in every scenario.
What are they for?
As stated above, the articles of association are a company’s rulebook, but what sort of rules does a company need? Below are some common points that a company will need to set rules in relation to within its articles of association.
- What is the minimum/maximum number of directors a company can have?
- Which decisions, if any, need consent from the directors of the company and which, if any, need consent from the shareholders of the company?
- Are there to be any “entrenched” articles? Entrenched articles are articles that can never be varied or amended unless there is unanimous consent of the shareholders to such an amendment or variation.
- How many directors of the company must be present in order to constitute a valid “quorum” for the purpose of board meetings?
- How can directors be appointed and removed?
- What is the share capital of the company and how, if at all, can a company allot further shares?
- What are the rights associated to each class of shares (where there is more than one class)?
As the articles of association are a public document there may be some matters, particularly in relation to the rights associated with different classes of shares and the relationship between the shareholders of a company, that are better suited to a different document, a shareholders’ agreement. A shareholders’ agreement is a private document and, therefore, cannot usually be obtained from Companies House records.
It is worth noting that where there is a shareholders’ agreement in place, or looking to be put in place, bespoke articles of association are often required to compliment this.