Articles of Association (Articles) set out the administrative and basic management structure of a company. By law, every company is required to have Articles and can choose between using one of the model sets of Articles prescribed under the Companies Act 2006 and preparing their own. Company Articles are a public document, filed and open for inspection at Companies House. Appropriately drafted Articles are critical to ensuring a company is run in the way intended and it is therefore important to understand what they do and what they need to include.
For companies without any specific requirements for their Articles, the Companies Act 2006 has prescribed some model sets of Articles (Model Articles) that a company can adopt wholesale, if they so wish. These are divided up into sections dealing with (among other things) the liability of the shareholders, the powers of and restrictions upon directors, the details and rights attaching to the company’s shares, how shareholders can make decisions for the company, and how the company carries out its administrative matters. In the broadest sense, the provisions of the Model Articles cover the company’s key legal requirements in terms of how it carries out its internal affairs, and many new businesses will adopt many or all of its provisions.
However, the Model Articles are not compulsory, and a company can adopt as many or as few of them as they see fit. The Model Articles make a number of assumptions as to the character of the business, including (without limitation) only having one type of shares, that the directors can allot new shares without consulting the shareholders, and that the company doesn’t have any subsidiaries. Where these, and further assumptions, are not applicable companies can either file the Model Articles with noted amendments, or file bespoke, ground-up Articles drafted specifically in line with a company’s requirements.
It is also important to point out that Articles which were appropriate at incorporation often will not remain suitable as the company evolves. A company, for example, may wish to create separate classes of shares with differing associated rights as new investors come in. In that situation, the Articles would need to be altered to reflect those different share classes and rights. This can be done by the passing of a special resolution of the shareholders and then subsequently filing the resolution and a copy of the new/updated Articles at Companies House, allowing a company to adjust its Articles to keep pace with its situation as it changes and develops.
A company’s Articles dictate it’s the way it is operated, its administrative functions and the structure and powers of its management. It’s therefore vital to understand what the Articles provide for, how they might affect your company’s decisions, and how best to utilise them as the company grows and develops.
BPE’s Start-Up Hub contains a bank of documents containing the most commonly used legal documents to get your new company off the ground. Here, you can find a template set of Articles that may be helpful, incorporating the Model Articles for a company limited by shares together with various additions and alterations that we frequently see in demand from newly established companies. The start-up hub also contains other documents for any new company to utilise, including template board minutes, employment contracts, and privacy notice, to name a few. Please click here if these are of interest to you.
If you need further legal advice on this, or on any aspects of establishing and running a new company, please contact BPE Solcitors LLP on 01242 248283 or at bpe@bpe.co.uk to discuss any legal work that you may require and how the corporate team can best assist.
