Articles of Association – Is It Time to Review Yours?

August 20, 2024

Articles of Association – Is It Time to Review Yours?

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By Rhodri Morgan

All companies must have articles of association, which are the fundamental constitutional document of any company.

Articles of association are in effect a legally binding contract between the company and its members/shareholders. It sets out the internal rules and regulations governing a company’s operations and decision-making processes.

In this article, we look at why a company’s articles are important and why it can be beneficial to review them to ensure they are fit for purpose.

Why are a company’s articles of association important?

A company’s articles of association set out some key provisions relating to the management and administrative structure of a company, such as the rules relating to the allotment and transfer of shares, and how board meetings and general meetings are called and any provisions relating to decision-making at those meetings.

It’s quite common when a company is first incorporated that the content of the company’s articles is not given much consideration.  Often, a company will be incorporated by an agent either using the “model articles” without amendments, or using standard template articles which have not been tailored to the particular company’s requirements.

Model articles are a standard set of articles of association which are automatically adopted by companies on incorporation unless they are amended or bespoke articles are provided at the time. They are standard templates of articles of association which contain the default provisions that regulate how a company is run.  Adopting bespoke articles which are tailored to the unique needs of a company will usually provide a more suitable legal framework for a company rather than the model articles.

When should a company’s articles be amended?

All companies should review their articles from time to time to ensure they are fit for purpose as the company grows and changes.

Typically, the articles will need to be amended at the following times:

1. When taking investment from third party investors who will often require new articles to be adopted to ensure any new rights and restrictions are reflected;
2. When issuing a new class of share with different rights and restrictions, these will usually be set out in the articles;
3. If your company has a sole director, to ensure that they have full decision-making authority;
4. Where your company group structure has changed.

It is best practice from a corporate governance perspective to ensure that your articles are reviewed periodically, in particular where something has changed in the company to ensure that the articles are brought up to date.

How does a company change its articles of association?

A company can adopt new articles provided they are approved by a special resolution of the members of the company.  The updated articles together with a copy of the resolution will need to be filed at Companies House.

How can we help you?

We can assist you with:

1. Reviewing your existing articles of association and advising on any recommended changes
2. Drafting bespoke articles of association (and any shareholders agreement which may be required)
3. Negotiating amended articles of association with any incoming investors

If you require advice or assistance with your articles of association, contact Rhodri Morgan on 012 4866 1283 or rmorgan@darwingray.com for a free initial call to see how we can help you.