If you are in the process of establishing a new company then one of the founding documents that you must consider is the articles of association. Using model articles of association can make the process of drafting these articles far easier, since they contain the essential elements of this key constitutional document. In this guide we explain what is meant by “model articles of association”, the limitations of their use and the alternatives available.
What are model articles of association?
As we have outlined before, elsewhere, a company’s articles of association are a mandatory constitutional document that is created and put in place when registering a new company. It constitutes an agreement about how the company will be run by its shareholders, directors and company secretary and includes details such as:
- How directors will be appointed and removed.
- How new company shares will be issued.
- How shares will be transferred.
- How directors will make decisions.
- How meetings for directors and shareholders will be organised and run, run and the process for voting.
Model articles of association are standard templates of articles of association provided by Companies House and can be used as they are or adapted to meet the needs of the new company.
As defined in section 19 of the Companies Act 2006 (CA 2006), the Secretary of State has the power to prescribe model articles of association for different descriptions of a company:
“Power of Secretary of State to prescribe model articles
- The Secretary of State may by regulations prescribe model articles of association for companies.
- Different model articles may be prescribed for different descriptions of company.
- A company may adopt all or any of the provisions of model articles”.
It is important to emphasise that the use of model articles is not compulsory.
The Companies (Model Articles) Regulations 2008 provides for three different types of model articles of association:
- Model articles for private companies limited by shares.
- Model articles for private companies limited by guarantee.
- Model articles for public companies.
The focus of this guide is on the model articles for private companies limited by shares.
Model articles of association are typically geared towards smaller, owner-managed companies and are intended to be as straightforward and generic as possible. Those drafting the Articles of Association are free either to leave the model versions completely unaltered or to amend them as necessary to accommodate the needs of the company.
Model articles of association are available from Companies House on the UK government website.
Alternatives to the model articles of association provided by Companies House
Some company formation specialists such as Uniwide Formations have developed their own set of standard articles which can be used for a wider range of private companies limited by shares. As these have been carefully drafted based on considerable experience of working with owners, directors and officers of companies across a very wide range of sectors, these can easily be tailored to meet the needs of modern companies.
Default application of Model Articles
If articles of association are not registered by a company then the relevant model articles of association apply by default. This is defined in section 18 of the Companies Act 2006, as follows:
- “A company must have articles of association prescribing regulations for the company.
- Unless it is a company to which model articles apply by virtue of section 20 (default application of model articles in case of limited company), it must register articles of association”.
Section 20 of the Companies Act 2006 states:
“On the formation of a limited company—
(a) if articles are not registered”
– i.e. if no articles have been registered then model articles shall automatically be deemed to apply.
What is included in model articles of association?
The Companies House model articles of association for private companies limited by shares includes 53 sections covering many important considerations. These include:
- Defined terms
- Liability of members
- Directors’ general authority
- Shareholders’ reserve power
- Directors may delegate
- Directors to take decisions collectively
- Unanimous decisions
- Calling a directors’ meeting
- Participation in directors’ meetings
- Quorum for directors’ meetings
- Chairing of directors’ meetings
- Casting vote
- Conflicts of interest
- Records of decisions to be kept
- Directors’ discretion to make further rules
- Methods of appointing directors
- Termination of director’s appointment
- Directors’ remuneration
- Directors’ expenses
- All shares to be fully paid up
- Powers to issue different classes of share
- Company not bound by less than absolute interests
- Share certificates
- Replacement share certificates
- Share transfers
- Transmission of shares
- Exercise of transmittees’ rights
- Transmittees bound by prior notices
- Procedure for declaring dividends
- Payment of dividends and other distributions
- No interest on distributions
- Unclaimed distributions
- Non-cash distributions
- Waiver of distributions
- Authority to capitalise and appropriation of capitalised sums
- Attendance and speaking at general meetings
- Quorum for general meetings
- Chairing general meetings
- Attendance and speaking by directors and non-shareholders
- Voting: general
- Errors and disputes
- Poll votes
- Content of proxy notices
- Delivery of proxy notices
- Amendments to resolutions
- Means of communication to be used
- Company seals
- No right to inspect accounts and other records
- Provision for employees on cessation of business
Part 1Interpretation and limitation of liability
Part 2Directors’ powers and responsibilities
Decision-making by directors
Appointment of directors
Part 3Shares and distributions
Dividends and other distributions
Capitalisation of profits
Part 4Decision-making by shareholders
Organisation of general meetings
Voting at general meetings
Part 5Administrative arrangements
Directors’ indemnity and insurance
The Companies House model articles of association for private companies limited by shares contains a number of limitations and assumptions of which it is important to be aware, as follows:
- the company has one class of shares.
- the model articles of association do not contain any authority for the directors to issue up to a specified amount of shares.
- directors have an absolute discretion to refuse to register a transfer of shares.
- all of the company’s shares are issued fully paid.
- the company has a secretary.
- the company’s shareholders do not have the right under section 145, CA 2006 to nominate another person to enjoy some or all of that shareholder’s rights.
- the company does not have any subsidiaries and is not part of a wider group of companies.
- the company has a common seal.
Given the assumptions and limitations of the model articles of association, it is important to review each section to verify whether amendments are needed in order to meet the requirements of your company. Furthermore, if your company makes key changes after formation (e.g. if you nominate a company secretary) then approval for these changes must be gained by written resolution or at a shareholders’ meeting and then the articles of association must be updated to reflect this alteration to your company’s constitution.
It may be, however, that using model articles of association is not appropriate for your particular needs. If the model articles meet most of your then you may decide simply to remove certain sections, such as the right of the chairman to have a casting vote or the right of directors to vote if they have a conflict of interest.
The importance of seeking expert help when drafting articles of association
While the standard articles of association provide a useful starting point and may be entirely suitable for some companies, having a set of articles of association drafted by an expert in company formation law may provide significant benefits, including putting in place the necessary provisions for:
- Voting by directors – It is important to ensure that an effective process for director voting exists that reflects the structure of the company. This includes ensuring that a quorum of directors is available to vote on decisions and that the process does not pose impose an unnecessary burden upon directors.
- Different classes of share – Many larger companies have more than one class of share with different voting rights attached.
- Pre-emption rights on the allotment and transfer of shares – A specific provision may be required for pre-emption rights on the transfer of shares to ensure that directors have a say in who should receive shares first if a shareholder leaves.
- Allotment of shares – You may wish to include an article that allows directors to issue shares to new shareholders following incorporation which are unpaid, partly paid or fully paid (instead of fully paid as specified in the standard articles).
Model articles of association provide a useful starting point when drafting constitutional documents, especially for small owner-operated businesses with a straightforward structure and decision-making process. At Uniwide Formations we have our own set of highly comprehensive Standard Articles of Association templates which can either be used as they are or else can be tailored to the needs of your company. Furthermore, we will ensure that any changes to your company following incorporation are quickly and accurately reflected in your existing articles, thereby ensuring that these articles are always up to date and properly registered.
Uniwide Formations specialises in the registration of limited companies and LLPs. As professional business service providers, we offer a wide range of related services and can advise you on all aspects of limited company formation and filing.