What is an article of association? Why do companies require it?
What is the function of articles of association?
The articles of association also referred to as 'the
constitution', or 'the articles' spell out the internal rules on how a company
needs to run. It includes a range of topics such as:
- What rights members (shareholders or guarantors) of a business are permitted to do
- The powers directors enjoy
- Numerous procedural matters, like how to increase the
number of shares in a company, or the methods with which the dividends are
It is vital that all the directors, secretaries, and members of a company get familiarise with the content of articles of association, as it contains significant information. The company should keep a copy of the articles in its records to make it easily accessible.
Model articles of association
The Model Articles are referred to as a template set of articles of association that companies can use. They act as the 'default' option of articles of association and are provided automatically to the companies that fail to submit their own set on incorporation.
Model Articles provide a good base, mainly for small businesses and sole trader companies, and they can also be edited to fit the company's structure and functions. Many company formation agents include Model Articles with their company incorporation packages.
Do you require a memorandum of association?
A memorandum of association is also a legal requirement for all the UK companies and is a matter of public record. The memorandum lists the initial members of a form, it also certifies that those members agreed to form a company under the Companies House Act 2006 and each of them has agreed to become a member of the company.
Can the articles of association change for a company?
Changes can be made to the articles, provided through a special resolution, which is passed in favour of the proposed amendments by the members of the firm. For a special resolution to pass, a majority of 75% or more is needed.