If you are about to incorporate a private limited company in the UK, you will no doubt come across ‘articles of association’ (“Articles”). This guide will give you an understanding of what Articles are, what they cover and how to navigate the template articles of association (“Template Articles”) we offer on Cooley GO Docs.
What are articles of association?
Essentially the Articles are the key ‘constitutional’ document that sets out the rules for running the company. The articles are generally split into five key areas:
- articles relating to the directors’ powers and appointment;
- articles relating to the shares of the company, including the ability to transfer shares to another person;
- articles relating to decision making by shareholders;
- how the articles should be interpreted; and
- administrative matters relating to the company e.g. the contact details for the company should the shareholders need to send documents to the directors.
Along with the shareholders agreement (for more information on what this is, see A Guide to Shareholders Agreements), the Articles govern the relationship between each of the shareholders and the shareholders and the company.
Do I really need to have Articles?
Yes – all companies are legally required to have Articles in place.
Is there a standard set of articles that I can use?
Yes – the government introduced ‘Model Articles’ that are essentially a standard set of articles adopted by default upon incorporation, unless a varied set of articles are specifically requested. Many companies (particularly start-ups) adopt the Model Articles with some amendments.
What are the key areas covered by the Template Articles?
The Template Articles adopt part of the Model Articles and are designed for early stage companies with several shareholders, but only a single class of ordinary shares. Some parts of the Model Articles are not adopted in an attempt to shorten and simplify the document.
The Template Articles contain the following:
- Articles 2 – 13 relate to how the directors should run the company. The articles cover how the directors should make decisions that affect the company, how they can hold and how they should run board meetings, and how they can be appointed to, or removed from, the board.
- Articles 14 – 20 relate to the shares in the company. These articles cover how the directors can allot further shares in the company to additional investors, the circumstances under which a shareholder can transfer his or her shares to another person and how shares should be valued on a sale.
- Articles 21 – 22 relate to how shareholders can make decisions.
- Article 23 describes how documents should be sent to the company and shareholders.
- Article 24 – 25 refer to the indemnity and insurance that need to be put in place to protect the directors of the company from any potential claims be made against them arising from anything they have done as a director of the company.
Where should I keep the Articles?
A copy of the Articles needs to be filed with Companies House. A copy should also be kept with the company’s files (known as the statutory books) and made available to shareholders on request. Should the articles be amended at any point (see below) then an updated copy of the Articles must be filed with Companies House.
Can I modify my company’s articles of association at a later date?
Yes – you can amend the Articles provided that holders of 75% of the existing shares in the company agree that they should be amended. Often, you will amend your Articles when accepting venture capital or other forms of third party investment, as the investors will likely want a separate class of shares included in the Articles to reflect the commercial terms of their investment.
If, at the stage of incorporation, you are already obtaining third party investment, and need more complex articles with additional classes of shares, be sure to get help from a lawyer familiar with venture investments who can advise you on what provisions should be added.