The memorandum and articles of association are two constitutional documents that all limited companies are required to have when they incorporate at Companies House.
The memorandum states the names of each subscriber (the very first shareholders or guarantors who become members during the company formation process) and their intention to form and join the business.
The articles of association is a governing document that outlines the purpose of a company, the rights and responsibilities of its members and directors, and the way in which the company must operate as a whole. Together, these two documents form the basis of your company’s constitution.
The memorandum of association
All companies must use the same pro forma memorandum document. It will contain the following information:
- Company name
- Date of incorporation
- Type of company – limited by shares or limited by guarantee
- Act under which the company is registered
- Names and signatures of all subscribers (original shareholders or guarantors)
- Limited liability of shareholders or guarantors
Any person or corporate body that subscribes (adds) their name to the memorandum during the company formation process will immediately become a member of that company. They will continue to be members until they choose to leave the firm. Details of all members are registered with Companies House and displayed on the central public register, which is available to everyone online.
The articles of association
The majority of new limited companies adopt model articles provided by Companies House under the Companies Act 2006, but it is possible to alter this version or draft your own bespoke articles to reflect the different requirements and objectives of your company if you have specific needs not covered in the model articles.
The contents of the model articles cover the following matters:
- Directors’ powers, responsibilities, decision making, appointment and removal, indemnity and insurance
- Shares, share rights, distribution and dividends
- Capitalisation of profits
- General meetings
You will have to alter the model articles or create your own if you wish to issue any class of share other than ordinary. Likewise, if you want to deviate from the standard version by changing, removing or adding any provisions, you will have to manually alter the document or create your own articles from scratch and submit them to Companies House.
Altering the model articles
If you decide to adopt an amended form of the Model Articles (such as introducing more than one share class), you will have to make the relevant changes yourself and file a copy with Companies House with your company formation package.
If you choose to adopt the model articles, you do not have to submit a copy for Companies House. Simply indicate on your registration application that your company is adopting model articles.
Changing your articles after incorporation
You can alter the articles at any time after the company is incorporated. To do so, the members must pass a special resolution agreeing to the changes, unless you wish to alter an entrenched provision (see below). A copy of the final document as altered must be submitted to Companies House within 15 days of the resolution being passed.
Sometimes these changes can be as simple as granting more rights to directors. Other times you may have to make more complicated changes, like creating more share classes or changing the rights of members. Whatever the reason, we advise seeking professional advice beforehand.
What are entrenched articles of association?
Most limited companies can amend their articles of association by passing a special resolution. This requires a 75% majority vote of members’ shares to be cast in favour of the resolution. However, a company can include additional clauses in its articles to make certain provisions more difficult to change than passing a special resolution.
Any clause that requires more than a special resolution to be amended is known as an ‘entrenched provision’ under the Companies Act (Section 22), which states:
- A company’s articles may contain provision (“provision for entrenchment”) to the effect that specified provisions of the articles may be amended or repealed only if conditions are met, or procedures are complied with, that are more restrictive than those applicable in the case of a special resolution.
- Provision for entrenchment may only be made in the company’s articles at the time of company formation, or by an amendment of the company’s articles agreed to by all the members of the company.
- Provision for entrenchment does not prevent amendment of the company’s articles by agreement of all the members of the company, or by order of a court or other authority having power to alter the company’s articles.
- Nothing in this section affects any power of a court or other authority to alter a company’s articles.
Entrenchment is not commonly used by companies with only one shareholder but such restrictions can be useful in joint ventures where one or more shareholders collectively hold less than 25% of the voting rights, thus affording minority shareholder(s) the same control as majority shareholders over certain changes to the company.
If an entrenched provision requires an absolute majority vote (100%) to be altered, minority shareholders have the power to prevent such change.
Adopting, removing, or altering entrenched articles
Under the Companies Act 1985, it was possible to entrench certain aspects of a company’s constitution by including them in the articles of association with the provision that they could not be altered. If your company was incorporated prior to 1st October 2009 under the 1985 Act, you will require a court order to change such entrenched provisions.
If your company was incorporated on or after this date under the Companies Act 2006, absolute entrenchment is not possible.
You may only entrench provisions in the articles on a conditional basis. This means you can stipulate that certain provisions may only be altered if specific conditions are met, or certain procedures are followed, for example, a provision that required the approval of more than a 75% majority vote.
You must notify Companies House on the relevant form if you include or alter any entrenched provisions in your articles of association:
Adopting entrenched provisions
If a company’s articles are adopted or altered to include entrenched provisions, Companies House must be notified on the prescribed form within 15 days of the amendment taking effect – Form IN01 upon incorporation, or Form CC01 in the case of amendment after incorporation.
A copy of the revised articles and the resolution agreeing to the amendment should be included with the prescribed form.
Removing entrenched provisions
To remove entrenched provisions from a company’s articles of association, Companies House must be notified on Form CC02 within 15 days of the amendment taking effect, together with the revised articles and corresponding resolution.
Altering existing articles containing entrenched provisions
To alter any entrenched provisions, a company must provide Companies House with a document making or evidencing the alteration. This should be accompanied by a Statement of Compliance (Form CC03) to certify that the changes have been made in accordance with the company’s articles (including any provision for entrenchment). Or, where relevant, in accordance with any order of the court or other authority that is in force at the time of the amendment.
A company may not alter its articles in such a way that a shareholder is required to increase his or her shareholding or liability, unless an agreement is made in writing before or after the alteration.
The purpose of the notification provisions, which can be found in sections 23 and 24 of the Companies Act 2006, is to ensure that Companies House, and any person searching the public register of companies, is on notice that the articles contain entrenching provisions, and that special rules therefore apply to the company’s articles.
Do I have to provide my own memorandum and articles?
The memorandum is a standard template that will be issued by Companies House or your company formation agent upon the successful incorporation of your company. The information you provide during the registration process will be used to prepare this document.
You will only be required to provide your own articles of association if you do not adopt the model articles issued by Companies House (the Model Articles). In such instances, you will simply check the required box on the formation application stating your intention to adopt the model version.
If you do not wish to adopt the model articles in their entirety and you wish to make alterations or create bespoke articles, you will be required to submit the altered version to Companies House.
Can I remove a subscriber’s name from the memorandum?
The memorandum cannot be amended at any time, regardless of whether any subscribers leave the business or change their name. It is a historical document and must always remain in its original state. For this reason, you must take great care when completing the memorandum.
Memorandum and articles from Rapid Formations
As part of our online registration service, our company formation packages come with a modified form of the standard model memorandum and articles. These are suitable for most private limited by shares companies with Ordinary shares. If you wish to incorporate a company with multiple share classes, give us a call and we’d be happy to guide you.