Both a memorandum of association and the articles of association are required for a company formed in the UK under the Companies Act 2006 and previous Companies Acts. The memorandum of association is the document that sets up the company and the articles of association set out how the company is run, governed and owned. The articles of association includes the responsibilities and powers of the directors and the means by which the members exert control over the board of directors.
In this article we look in detail at the content of these documents. For a practical take, elsewhere we explore what investors will look for in a company’s articles of association and how to change the articles of association. We also explain some enhancements that you may want to make to the model articles of association.
Memorandum of association
The memorandum confirms that the subscribers wish to form a company under the Companies Act and agree to become the first members of the company. In the case of a company that is to have a share capital, they undertake to subscribe for at least one share each.
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The memorandum of association must be in a prescribed form and must be authenticated by each subscriber. The memorandum of association, which includes a statement of compliance, must be delivered to Companies House together with an application for registration of the company and the new company’s articles of association.
Before the Companies Act 2006 came into force a company’s memorandum included provisions which now fall within the articles of association, including any restrictions on what the company could do. For companies formed before 1 October 2009 these restrictions are now treated as being part of the articles and not the memorandum.
Articles of association
The articles of association set out how the company is run, governed and owned. The articles can put restrictions on the company’s powers – which may be useful if shareholders want comfort that the directors will not pursue certain courses of action, at least without shareholder approval. By default, however, the Companies Act 2006 gives a company unlimited powers.
In addition to the articles, which is a public document, the shareholders may enter into a shareholders’ agreement to augment the articles in relation to the running, governance and ownership of the company that they want to keep out of the public domain.
Before the Companies Act 2006 came into force the memorandum of association had to state in an ‘objects clause’ the types of business and transactions that a company could enter into. This will still restrict the company’s powers as these limitations are now treated to be part of the articles. Older companies should therefore review their memorandum and articles of association for any changes needed, including the need to remove this objects clause. The removal of the objects clause is only effective if form CC04 is submitted to Companies House, together with the special resolution approving the amendment.
There are exceptions to the unlimited powers now given to companies. Charitable companies must state the charitable purposes that the company is restricted to. Similarly, community interest companies must restrict the company to purposes that benefit the community.
There is no set form for the articles although there are certain provisions that need to be included in them. To assist with this there are model articles set out in The Companies (Model Articles) Regulations 2008, as amended for the three most common types of company:
- private company limited by shares;
- private company limited by guarantee; and
- public limited company.
The most up to date versions of these are available on Companies House’s website. In addition, the Charity Commission has a set of model articles for charitable companies which can be used and the Community Interest Companies Regulator has model articles for community interest companies.
If the model articles are not being adopted then the company can either use amended model articles or its own bespoke articles. In either case the articles need to be sent to Companies House when applying to form the company so that they can be reviewed to ensure that they are acceptable. Where they are amended model articles only the amending provisions need to be sent to Companies House for review. If there is a perceived problem with the articles they will need to be amended before the company can be formed.
For charitable companies the articles also need to be sent to the Charity Commission for approval. For community interest companies the articles are forwarded to the regulator by Companies House to be approved.
The articles should cover, amongst other matters, the following:
- Liability of members;
- Directors’ powers and responsibilities;
- Directors’ meetings, voting, delegation to others and conflicts of interest;
- Retaining records of directors’ decisions;
- Appointment and removal of directors;
- Shares, unless a limited by guarantee company:
o issuing shares;
o different share classes and their particulars;
o share certificates;
o share transfers;
- Dividends and other distributions to members;
- Members’ decision making and attendance at general meetings;
- Means of communication;
- Use of the company seal, if applicable; and
- Directors’ indemnity and insurance.
Need enhanced articles of association?
Our professionally drafted articles of association offer various enhancements to the standard model articles, allowing you to have one, two or three share classes.
You can purchase these enhanced articles online for your new or existing company or when forming a company using Inform Direct.
The articles of association can be amended and in another article we explain the process of changing the articles, with free template resolutions for the required special resolution. If a company changes its articles of association, other than to the model articles, a copy of the articles should be sent to Companies House within 15 days of the change for review. A copy of the amending resolution must also be sent within 15 days of being passed. You do not need to tell Companies House why you are changing the articles of association.
The directors and company secretary (if one is appointed) of a company should have a good working knowledge of the company’s constitutional documents, especially the articles of association. When managing the business of the company, they need to be comfortable that they are acting within the powers conferred by the articles and following and processes or other formalities laid down there.
It’s also sensible for the board to review the articles on a regular basis. As the company and its circumstances change, some existing clauses may no longer be useful or new provisions may be desirable. By reviewing and, where appropriate, updating the articles of association the company can achieve the most appropriate balance between the needs of the directors and members, giving the former the right powers to run the company while protecting the interests of its members.
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A previous version of this article was originally published on 15 February 2017.