What are Articles of Association?

The business solicitors at Holmes & Hills offer an insight into what Articles of Association are.

Articles of Association are written rules about the running of a company, that are agreed by the shareholders, guarantors, directors and the company secretary of that company.

The Articles of Association form part of the company’s constitution, and typically include the following provisions:

• What the purpose of the company is;
• How directors will be appointed;
• What the directors’ powers and responsibilities will be, and how they will exercise these powers and responsibilities;
• The share capital of the company, and how shares will be transferred;
• The procedure for the payment of dividends and other distributions owed to the shareholders; and,
• How decisions will be made amongst shareholders of the company.

A company can either adopt Model Articles of Association, amend or adapt these Model Articles to reflect their business and how it is structured, or draft entirely new Articles.

If the Model Articles are not fit for the company purpose, it is recommended that these be amended, or that new Articles are drafted, as otherwise, the company will be bound by the Model Articles and obliged to act in accordance with them. Instances in which company’s may be obliged to act within the restrictions placed upon it in the Model Articles of Association where these may not be fit for purpose include the following:

• The Model Articles of Association states that if the numbers of votes for and against a proposal are equal, the chairman of the directors has a casting vote. This could give the person chairing the board meeting more power than the other directors, and you may wish to apply other provisions in the event of a deadlock.
• The Model Articles of Association only deals with one class of shares. However, often, a company can benefit from creating different classes of shares which each carry different voting and dividend rights to differentiate amongst different shareholders.
• Under the Model Articles, a shareholder is not compelled to transfer shares either to a third party, or back to the company. However, you may wish to include provisions which compel a shareholder to transfer their shares in certain circumstances. For instance, if that shareholder is no longer an employee of the company, if that shareholder is mentally or physically unable to continue on as a shareholder, or if that shareholder passes away, you may wish to ensure that their estate is obliged to transfer their shares back to the company.

You can either amend or adapt the Model Articles of Association at the point that the company is incorporated, or at any other time after incorporation, provided that if the Articles of Association are amended or adapted after incorporation, the shareholders have passed a special resolution to amend their articles of association (which means that 75% or more of shareholders have agreed to amend the Articles of Association of the company), or they have complied with any other restriction regarding amending their Articles of Association as expressed within the Articles.

• A copy of the resolution within 15 days of it being agreed;
• A copy of the amended Articles of Association; and,
• Any other forms required.

The commercial solicitors at Holmes & Hills can assist with the following:

• Reviewing your current Articles of Association and advising on whether they are fit for purpose;
• Suggesting amendments to your Articles of Association in order to give rise to what you wish to do as a company;
• Amending your current Articles of Association, or drafting new Articles; and,
• Assisting with filing your amended Articles to Companies House, including drafting a written resolution for your shareholders to sign, and taking any other steps necessary to ensure that your Articles are in force.

If you require further information or advice in relation to any legal aspect of your business, our specialist commercial lawyers will be able to assist.