Guide to understanding Articles of Association

All private (and public companies) in the UK that are registered at Companies House are legally required by the Companies Act 2006 (CA 06) to have a set of Articles of Association (Articles). The Articles of Association of a company defines its purpose and states the regulations that will govern it.

Articles are critical when it comes to governing a business. They can be considered as a contract between the company and its shareholders, directors and company secretary (if they have one).

The Articles of a company can be found online under the ‘filing history’ tab of a company’s record at Companies House online.

What are Model Articles?

Model Articles of Association are a set of standard default rules and regulations for the internal management and operation of a company (Model Articles). They effectively deal with the day-to-day running of a company and how it’s governed.

Companies can choose to adopt the standard Articles, which are Model Articles or draft their own Articles to suit their need. Bespoke Articles are often based on the Model Articles.

What is typically included in the Articles?

Articles typically include the rules and provisions that govern the internal management and operations of a company. The specific content may vary depending on the jurisdiction and the requirements of the company, but common elements included are:

• Share Capital: Information about the company’s authorised share capital, types of shares, and the rights attached to each class of shares
• Directors: The appointment and removal of directors, their powers, and procedures for board meetings and decision-making
• Shareholder Meetings: Rules for convening and conducting general meetings, including notice requirements, voting procedures, and quorum
• Voting Rights: Details on voting rights for each class of shares and include the required threshold of support required for certain proposals
• Dividends: Provisions related to the declaration and payment of dividends, including the right to receive dividends and the timing of dividend payments
• Transfer of Shares: Procedures for transferring shares, including any pre-emption rights and restrictions on the transfer of shares
• Company Secretary: The appointment and role of the company secretary
• Accounting Records: Requirements for maintaining proper accounting records and financial statements
• Winding-Up: Procedures for the winding-up and dissolution of the company
• Indemnity and Insurance: Provisions related to the indemnification of directors and officers and required levels of insurance coverage.

What are the limitations of Model Articles?

Model Articles for private companies limited by shares contain a number of limitations and assumptions of which it is important to be aware. These include the following:

• The company has one class of shares
• All of the company’s shares are issued fully paid
• Directors have an absolute discretion to refuse to register a transfer of shares
• They do not contain any authority for the directors to issue up to a specified amount of additional shares
• The company’s shareholders do not have the right under section 145, CA 06, to nominate another person to enjoy some or all of that shareholder’s rights
• The company has a secretary
• The company does not have any subsidiaries and is not part of a wider group of companies
• The company has a common seal.

Are they appropriate for your company?

Given the above, it is important to consider whether amendments are needed in order to meet the requirements of your company. Furthermore, if your company makes key changes after formation, then approval for these changes must be gained by written resolution or at a shareholders’ meeting, and then the Articles must be updated to reflect this alteration to your company’s constitution.

It may be, however, that using Model Articles is not appropriate for your particular needs. If so, it would be prudent to engage legal advisors to assist you in preparing a set of bespoke Articles suitable for the needs of your company.

When can you change your Articles?

The general rule is Articles can be changed at any time, subject to the passing of a special resolution of the shareholders (i.e. approval from the shareholder holding at least 75% of the votes).

Many companies will amend their Articles overtime. As business evolves, the requirements of the governance of the company is likely to change, so it is important that the Articles reflect these.

Do the Articles override the Companies Act 2006?

The CA 06 recognises that companies need to evolve, and therefore, there is a degree of flexibility in deviating from certain provisions contained within CA 06. However, we would always recommend seeking legal advice if you were considering doing so.

Do they overrule Shareholders’ Agreements?

In many cases, the Articles do override a shareholders’ agreement, as they serve as the fundamental governing document for a company, and they apply to all shareholders, whether or not they have signed a separate shareholders’ agreement.

However, it’s important to note that shareholders can include provisions in a shareholders’ agreement that may take precedence over the Articles on specific matters. Shareholders’ agreements are typically private contracts among the shareholders, and they can cover a wide range of issues, including the transfer of shares, rights of first refusal, management decisions, and more. These contractual agreements can provide more detailed or customised rules and restrictions than what is found in the Model Articles.

Contact our corporate and commercial solicitors today

If you are considering forming a company or feel that your existing Articles are increasingly becoming unfit for purpose, please do not hesitate to get in touch with a member of our Corporate & Commercial team or complete this online enquiry form, and we will be happy to assist you with your enquiry.