The articles of association are the significant document that forms all the rules and regulations with the help of which the internal affairs of a company are governed. As stated in Section 18 of the Companies Act 2006, this is a legal requirement of all UK businesses to have articles of association.
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 made.
All the directors, secretaries, and members of a company must 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 them easily accessible.
A company's articles of association can usually be seen in its incorporation documents on Companies House Services. If the documents cannot be seen, then it means that the firm is using 'Model Articles'.
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.
The Companies Act 2006 offers Models Articles, which has three different versions, each for a different type of company such as private companies limited by shares, private companies limited by guarantee, and public companies that are limited by shares.
Do you require a memorandum of association?
A memorandum of association is also a legal requirement for all 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.
For the companies that are formed under shared capital, the memorandum will also certify that every single member agreed to take a minimum of one share in the company. Memorandum is a historical document that cannot be transformed.
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.