Articles of Association; every company has one and it is arguably its most important document, but people often aren’t aware of how they work or what they can do. Here we try and simplify it all a bit though inherently we can only scratch the surface so if you have any specific questions please see the drafting services we can provide for articles of association or get in touch with us to discuss your specific needs.
- shares and dividends;
- proceedings of directors;
- proceedings of shareholder meetings; and
- various administrative matters.
They can range from relatively simple and standard documents to very long and bespoke documents dealing with different types of share rights and decision making processes.
It is a public document which anyone can view through Companies House.
A shareholders’ agreement is not a public document and so it is sometimes used to include commercial details that the shareholders don’t want to be publicly available.
Elemental CoSec can review a company’s articles of association and advise on whether it’s sensible to update the articles.
The model articles are the most simple and straightforward of the standard articles and generally the easiest to use, although the compromise with this is that they exclude a lot of standard provisions. These articles are best suited for a company with just one shareholder or where the shareholders are not going to disagree.
Elemental CoSec’s precedent articles are designed for a company with just one shareholder, but do have provisions that can be applicable for multiple shareholders. They do not contain any minority protections and are therefore not suitable for shareholders who want to protect their rights against the others. They give the directors more discretion than the wholly owned articles.
Bespoke articles of association are almost always the best option, if you can afford them. They allow you to set out exactly the rights, obligations and procedures that the shareholders wish to have. They can also be tailored to fit with a shareholders’ agreement if needed.
If you are unsure which articles you require or whether you need bespoke articles then please contact us as the choice of articles is one of the most important for a company.
Key terms in the Articles of Association
The model articles allow the directors to issue shares with such rights or restrictions as may be determined by ordinary resolution.
The model articles do not prohibit the directors from allotting shares so, assuming the company has only one class of shares, the directors may allot further shares.
- the articles of association exclude them;
- the company passes a special resolution excluding them;
- the shares are issued for non-cash consideration; or
- the shares are within an employees’ share scheme.
The model articles do not dis-apply the standard pre-emption rights so unless one of the other exceptions applies, the pre-emption rights will apply to any allotment.
The model articles do contain this reserve power.
The model articles allow the directors to refuse to register a transfer for any reason they see fit though they must act in the best interests of the company when doing so (and not the best interests of a particular shareholder).
- notice requirements;
- attendance and speaking rights;
- chairing of general meetings; and
- voting and proxies.
The Companies Act 2006 permits private companies to pass shareholders resolutions by written resolution (other than in relation to certain exceptions).
The model articles contain basic information about general meetings but most private companies using the model articles will use the written resolution procedure and therefore the model articles are not that detailed on general meetings.
The model articles provide that directors may make a decision:
- by majority decision where they have had a directors’ meeting; or
- by unanimity where they pass a written resolution.
The model articles provide provisions dealing with when a conflicted director can vote but are quite limited in the ability for a director’s conflict to be authorised.
The information provided in this article is intended as a general guide to assist people in understanding the main clauses of articles of association. It does not purport to be comprehensive and should not replace bespoke advice. If you are in any doubt, please speak to one of our experts.