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 cannot register your company online.
What is the purpose of articles 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 do take certain actions without the approval of the shareholders, and that shareholders cannot 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.
Model articles of association vs. custom articles of association
If a company uses model articles of association, they are 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 to other and handle conflicts of interest
- How directors are appointed and removed
- How records pf 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
- Company seal
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.
Can you change articles of association?
A company may want to make changes to its articles of association for a 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 a new personalised set.
Once a company change it articles, the new articles should be sent to Companies House within 15 days. It is not necessary to explain why the articles are being changed.
If you are 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 cannot 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 does not mean that every member of the company has to agree on the change, but that changes cannot be used to discriminate against groups of members.
- Changes cannot be made if they cannot be reversed or altered in the future. Although it is possible to make changes which set conditions for alternations.