Every limited company in England and Wales needs to have articles of association in order to be legally formed.
Articles of association are written rules that shareholders, directors and company secretaries of a business agree on.
Articles of association create a contract between a company and its shareholders. This defines how the company will be run.
Tak Matsuda from crestlegal.com explains that articles of association (or “articles”) are divided into a number of points in a single document including:
- limited liability of shareholders.
- number of directors, roles and responsibilities and how decisions will be made.
- shares and dividends – payments of dividends, rights attaching to particular shares and any issues of transfers of shares.
- decision making options available to shareholders.
What other documents do you need?
It’s important to note that articles of association are not the only documents required when setting up a company. A memorandum of association is the other important document and cannot be changed once the company is incorporated.
When setting up your company you need a memorandum of association which is a legal statement signed by all shareholders who agreed to own the company.
This defines what the company is about, including the name, date of incorporation and whether the company is limited by shares or by guarantee as well as all relevant names and signatures of those involved.
What can be amended?
Unlike a memorandum of association, “articles” can be amended if the directors hold a board meeting or general meeting to create a special resolution. Usually, the resolution needs 75% of a vote share in order for the proposed changes to go ahead.
Changes may include the way the company is administered or because a new regulation has come into place.
All changes should be sent to Companies House within 15 days.
All articles of association should be kept as public documents with Companies House.
Because the Articles of Association are public, you may wish to have a private shareholders agreement that details roles, rights and obligations of shareholders.
This may help resolve any future disputes and ensure a smooth running of the business.
Find out more about articles of association for limited companies at gov.uk