What are Articles of Association and do they matter?30 Nov 2017
Company articles - standard or amended?
The Articles of Association is a statutory legal document that forms the basis of a company's constitution. The launch of a new business is an exciting time for every business owner, but it brings with it a number of financial and legal obligations and a wide range of decisions that need to be made. Should you incorporate a limited company or operate as a sole trader? Should you hire a small business accountant or should you learn to manage your company's finances yourself in the early days?
What are they for?
The Articles of Association defines the new company's share structure and the rights attached to different share classes, details how the company will be governed, outlines rules and protocols for the appointment and removal of company directors and defines the procedures and provisions concerning the sale or transfer of company shares.
How to draft Articles of Association for a new business?
Many new companies use standard Articles of Association, which are known as 'model Articles'. New business owners can download model Articles from the Gov.uk website, which have been created by Companies House in line with the Companies Act 2006.
Although model Articles greatly simplify the process of company formation, new businesses can choose to write their own Articles if the model Articles don't meet their requirements. However, it is important to bear in mind that if you do you choose to write your own Articles it will make your company's registration process more complicated, and you will need to register the company in writing rather than registering online. At Accounts and Legal we have a Company Formation Package which can help make this process as simple and painless as possible.
Do the Articles of Association matter?
Many new companies give their Articles of Association very little thought after filing them with Companies House. In fact, unless the new company has an unusual share structure or unconventional model of corporate governance its Articles will likely follow the generic, standardised 'model Articles' format.
However, although many companies have almost identical Articles of Association this document does play an important role in dictating how the company operates. For that reason a company may need to amend its Articles of Association as it grows, to reflect changes to corporate structure or governance.For example, fast growing companies may want to create a new class of shares, such as preference shares, or vary the rights attached to certain share classes. Or a company may want to amend how it regulates the transfer of shares, or modify the procedure for the appointment of new directors or the rules governing the payment of dividends and other distributions.
Advice on getting the right company articles of association
If and when you do need to draft or amend your company's Articles of Association you can speak to our team of experts to make this process as straightforward as possible and ensure you fulfill all your statutory obligations.When the time comes just give us a call or email us.