What are company’s articles of association?
In England and Wales, all companies must – by law – have a set of articles of association (also known as just “articles”).
The contents of the articles are important because the articles govern how the company should be run in certain areas. The articles also place some limits upon what a director or shareholder of the company can or can’t do.
When a person becomes a director or shareholder of a company, they are also agreeing to follow the articles; in this regard the articles of a company can be thought of as being similar to the constitution of a club or country.
The articles must also set out the rights attaching to the shares of the company. If you are thinking of issuing a new class of share, you should remember to also update the company articles at the same time.
For many years it has been possible for a company to use default statutory sets of articles, known as the “model articles” or the “table A articles”. You can view various sets of statutory articles here: https://www.gov.uk/guidance/model-articles-of-association-for-limited-companies.
What do the statutory articles cover?
The statutory articles usually cover a wide range of topics including: how directors are appointed and removed; the procedure for declaring a dividend; how shareholders’ general meetings are to be held; amongst other matters.
However, caution should be exercised when using these statutory articles, as they can create some inconsistencies. For example, the statutory articles often state the company must have at least two directors, which obviously would mean that these are not appropriate for a company with a sole director.
What don’t the statutory articles cover?
The statutory articles are silent on certain areas that you may want to consider accounting for in your own set of bespoke articles.
For example, it is possible to have bespoke provisions added into the articles which:
- require a shareholder to sell their shares to any existing shareholders, before they sell them to a third party;
- automatically cause the resignation of a director, if they cease to hold shares in the company; or
- require the directors to obtain the consent of all the shareholders before certain actions can take place.
It is important to note that the articles of association are filed at Companies House and are a public document. This means that they can be viewed by anybody. As a result, you may prefer to keep these provisions in a shareholders’ agreement instead, as this is a private document.
How can you change the articles?
Due to the importance of the articles to a company, the only people that can change the articles are the shareholders of the company. This is done by special resolution – which means that shareholders holding 75% or more of the shares must agree to changes the articles.
This is a brief summary of the points that should be considered where you are thinking about using a new set of articles of association or where you are looking at amending your current articles of association.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.