All limited companies in the UK must adopt articles of association upon incorporation. In this blog, we will explain the significance of this official documentation.
What are the articles of association?
Every company must have a constitution that comprises two documents: the articles of association and a memorandum of association.
Although the memorandum of association used to be important, it is now more of a formality that serves to effect incorporation. However, a company’s articles of association are crucial in terms of ongoing corporate governance throughout the lifecycle of the business.
The articles of association essentially regulate the way a company is managed. They govern the powers and responsibilities of company directors, along with the way in which they can be appointed and dismissed.
The rights of shareholders are also contained within the articles of association. And the decision-making procedures of directors and shareholders are normally outlined in the document.
Some of the specific provisions included in a company’s articles of association relate to:
- General authority of company directors
- The procedure for company directors to make decisions
- Appointment and termination of company directors
- Remuneration and expenses of company directors
- Powers of the company to issue new shares
- Payment of dividends and other distributions
- Organisation of general meetings and voting process
- Directors’ indemnity and insurance
Why are the articles of association important?
The articles of association form a contract between the company and its shareholders. Many of their provisions are imposed by the Companies Act 2006 but others are optional. But all of the provisions contained in a company’s articles of association have legal force and must be followed, subject to any overriding laws.
Any breach of the provisions contained in the articles of association will usually make the action taken void. A limited company cannot legally exist without a valid set of articles of association.
More generally, the articles of association provide protection for company shareholders and help to ensure the company is managed correctly within defined parameters.
How do I obtain articles of association?
Most companies will adopt the model articles of association. These are the standard default articles a company can use, and they are freely available from Companies House.
Using the most recent model articles will be the most simple and straightforward way of implementing articles of association upon formation.
But some companies decide to tailor the model articles, removing, adding, or altering provisions. It is also possible to create an entirely bespoke set of articles of association. It is always advisable to obtain legal advice from a specialist company lawyer if you wish to customise the articles.
Some of the reasons for creating bespoke articles of association may be:
- to issue multiple classes of shares
- to prevent potential deadlock by allowing board meetings to be quorate when there’s just one director
- to allow any conflicted director to be included in board meetings for quorum and voting purposes (as long as they have disclosed their conflict of interest)
When you form a company with Rapid Formations you will receive a copy of your company’s articles of association by email upon incorporation. These are also automatically submitted to Companies House as part of the incorporation procedure.
Can I update my articles of association?
A company’s articles of association can be changed following incorporation if required. It may be necessary to update the articles as a company grows and changes its processes. Sometimes the articles will need to be updated due to a change in the law.
It is possible to amend a company’s articles of association by passing a special resolution of the shareholder:
- A special resolution needs a majority of at least 75% of the total votes of shareholders.
- A special resolution can be passed either: as a written resolution that is signed by the shareholders; or by casting votes at a general meeting of the shareholders.
- Once the special resolution is passed, a copy should be submitted to Companies House within 15 days.
- A copy of the updated articles of association must be submitted within 15 days of them taking effect.
If you have specific requirements and would like to use a bespoke set of articles of association for your new company, or you require your existing articles to be changed, give our Company Secretarial Team a call at 020 3984 5385.