All limited firms within the UK must adopt articles of association upon incorporation. On this blog, we are going to explain the importance of this official documentation.
What are the articles of association?
Every company will need to have a structure that comprises two documents: the articles of association and a memorandum of association.
Although the memorandum of association was once essential, it’s now more of a formality that serves to effect incorporation. Nevertheless, an organization’s articles of association are crucial when it comes to ongoing corporate governance throughout the lifecycle of the business.
The articles of association essentially regulate the best way an organization is managed. They govern the powers and responsibilities of company directors, together with the best way by which they might be appointed and dismissed.
The rights of shareholders are also contained inside the articles of association. And the decision-making procedures of directors and shareholders are normally outlined within the document.
A few of the specific provisions included in an organization’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 corporate to issue recent shares
- Payment of dividends and other distributions
- Organisation of general meetings and voting process
- Directors’ indemnity and insurance
Why are the articles of association essential?
The articles of association form a contract between the corporate and its shareholders. Lots of their provisions are imposed by the Companies Act 2006 but others are optional. But the entire provisions contained in an organization’s articles of association have legal force and should be followed, subject to any overriding laws.
Any breach of the provisions contained within the articles of association will normally make the motion taken void. A limited company cannot legally exist with out a valid set of articles of association.
More generally, the articles of association provide protection for company shareholders and help to make sure the corporate is managed appropriately inside defined parameters.
How do I obtain articles of association?
Most firms will adopt the model articles of association. These are the usual default articles an organization can use, and so they are freely available from your organization formation agent or Corporations House.
Using essentially the most recent model articles will probably be the simplest and simple way of implementing articles of association upon formation.
But some firms resolve to tailor the model articles, removing, adding, or altering provisions. Additionally it is possible to create a completely bespoke set of articles of association. It’s all the time advisable to acquire legal advice from a specialist company lawyer in the event you wish to customize the articles.
A few of the reasons for creating bespoke articles of association could also be:
- to issue multiple classes of shares
- to forestall potential deadlock by allowing board meetings to be quorate when there’s only one director
- to permit any conflicted director to be included in board meetings for quorum and voting purposes (so long as they’ve disclosed their conflict of interest)
While you form an organization with Rapid Formations you’ll receive a replica of your organization’s articles of association by email upon incorporation. These are also robotically submitted to Corporations House as a part of the incorporation procedure.
Can I update my articles of association?
An organization’s articles of association might be modified following incorporation if required. It could be crucial to update the articles as an organization grows and changes its processes. Sometimes the articles will should be updated as a result of a change within the law.
It is feasible to amend an organization’s articles of association by passing a special resolution of the shareholder:
- A special resolution needs a majority of at the very least 75% of the full votes of shareholders.
- A special resolution might be passed either: as a written resolution that’s signed by the shareholders; or by casting votes at a general meeting of the shareholders.
- Once the special resolution is passed, a replica ought to be submitted to Corporations House inside 15 days.
- A replica of the updated articles of association should be submitted inside 15 days of them taking effect.
If you could have specific requirements and would really like to make use of a bespoke set of articles of association to your recent company, otherwise you require your existing articles to be modified, give our Company Secretarial Team a call at 020 3984 5385.