This is the document that arranges the internal relationships, for example, between members of the company, and the duties of directors. The Companies Act 1985 gives a model known as Table A.
Articles of association (also known as Articles of incorporation) along with Memorandum of Association are required by law to establish a company in the United Kingdom. The documents are often collectively referred to as the company’s constitution. Articles of association regulate the internal administrative and management responsibilities by setting out decision-making processes and other matters such as appointment and removal of directors, shareholders’ rights and procedures for board meetings.
Model Articles of Association
If a company is established without custom model articles, default Table A or Model Articles will be adopted automatically.
- Table A is the old name of the Model Articles of Association used by limited liability companies incorporated prior to 1 October 2009. Table A has been replaced by much simpler articles brought by the Companies (Model Articles) Regulations 2008. These new articles apply to all companies formed in England and Wales on or after 1 October 2009.
- New Model Articles have replaced the old Table A articles and are now default articles of association for all private and public companies limited by shares created on or after 1 October 2009. They also contain special provisions for companies limited by guarantee. Old companies using Table A articles can amend their articles to bring them into line with the new model articles.
Main differences between the old and new articles of association.
Due to the changes that were brought by the Companies Act 2006, the old and new articles differ in some key areas. Some differences include:
- New articles do not contain provisions regarding partly paid shares as the Department for Business, Innovation and Skills concluded that shares are nearly always fully paid up.
- As there are no legal requirements for companies to have a company secretary, new articles do not contain any provisions covering these aspects.
- The new articles recognise modern ways of communication and abolish the need for directors to be present at the same location for meetings. Therefore, official meetings can be conducted using telephone or video conferencing facilities.
- The new articles do not refer to alternate directors.
Although, the above changes reduce the complexity and overall length of the new model articles of association they also mean that not all businesses will be able to use them. They are likely to perfectly fit small to medium businesses but most definitely will not be sufficient for advanced corporate business structures using venture capital and other private equity financings. If the new articles prove to be lacking, BIS recommends adding supplementing provisions from the public company model articles of association. In particular, it might be worth to consider the following:
- Class meetings (meetings of shareholders with different classes of shares);
- Retirement of directors by rotation;
- Provisions for the inclusion of dividends on partly paid shares.
- Shares – articles will state the total number and nominal value of shares issued. They will also identify the class of shares issued. Different classes may carry different rights such as full voting rights or rights to priority dividends. Please note that once you subscribe for shares you will not be able to get your money back from the company unless they are defined as redeemable or court allows for the company’s capital to be reduced.
- Transfer of shares – this provision is particularly useful to family-run businesses as it can restrict the power to transfer. Inclusion of so-called pre-emption rights is quite common in most companies. The rights provide that each time a transfer is proposed by a member, this member’s shares need to be first offered to all existing shareholders proportionately to their shareholdings.
- Board and General Meetings – the articles will state the procedure for meetings of directors and shareholders. They will set quorum (how many directors need to be present for the meeting to be held valid). Procedures for calling general meetings of shareholders and voting will be described.
- Directors – the articles will specify the minimum and maximum number of directors that the company may have at the same time. Provisions regarding remuneration and length of service will also be included and should be tailored to suit business needs.