Articles of association – What are articles of association?
Articles of association are written rules which set out how a company should be run and governed. They are agreed upon by a company’s shareholders, directors and secretary.
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Companies can choose whether to use ‘model articles’, the standard rules of running a company, or to write their own articles. If you choose to write your own articles, you can’t register your company online.
Under the Companies Act 2006, when a new company is formed, it needs to have both articles of association and a memorandum of association.
Articles of association outline the rules for running, governing and owning the corporation; including the responsibilities and powers of the directors, and how much influence shareholders have over the board of directors.
This is important as it can prevent disputes within the company and gives shareholders confidence in the directors.
For example, articles of association can ensure that directors take certain actions without the approval of the shareholders and that shareholders can’t make unreasonable demands of the directors.
Articles of association are public documents. If shareholders want to expand on the articles of association without disclosing extra information to the public, they can also choose to create a shareholders’ agreement.
If a company uses model articles of association, they’re given unlimited powers by default. However, if shareholders or the board of directors want to put restrictions on what the company has the power to do, they can write their own articles.
If a company writes its own articles, they need to send the articles in full to Companies House along with their application to form a company.
The full articles of association should cover:
The powers, responsibilities, indemnity and insurance of the directors
Details of how directors hold meetings, vote, delegate and handle conflicts of interest
How directors are appointed and removed
How records of directors’ decisions will be recorded
Liability of members
Details of members’ decision making and attendance at general meetings
Distribution of dividends to members and stockholders
How shares are issued, classed, and transferred
Methods of communication
Companies House assess whether the proposed articles are appropriate or acceptable. If they decide that the articles are not suitable, Companies House can refuse to approve the formation of the company until the articles are amended.
Charities and community interest companies need to follow slightly different rules. Charitable companies need to send their proposed articles of association to the Charity Commission, as well as to Companies House. Community interest companies should send their proposed articles to Companies House, which are then forwarded to the relevant regulator.
A company may want to make changes to its articles of association for several different reasons. Articles can be amended in a number of ways:
Changing the wording of clauses of existing articles
Adding new clauses or removing existing ones
Replacing the articles of association with the model articles
Replacing the previous set of articles with the new personalised set
Once a company change its articles, the new articles should be sent to Companies House within 15 days. It’s not necessary to explain why the articles are being changed.
If you’re thinking of making changes to your company’s articles of association, you should make sure that:
Any changes that are made retrospectively need to be legal and fair. For example, articles can’t be changed to force members to increase their shares or to give extra funds to the company.
All changes are in the interests of the entire company, rather than just a specific group. This doesn’t mean that every member of the company has to agree on the change, but that changes can’t be used to discriminate against groups of members.
Changes can’t be made if they can’t be reversed or altered in the future. However, it’s possible to make changes that set conditions for alternations.