I am currently a shareholder in a new startup company. I went to a shareholders meeting recently and heard some of the other shareholders saying that we need to change the articles of association of the startup so that we can have more influence on how the directors run the company.
Can you please explain what are articles of association of a company?
The Answer from Solicitors Online
Articles of Association
The articles of association are rules that govern the roles of shareholders and directors in a company as well and include the functions of the company. It is an important document which needs to be filed with Companies House.
When you set up a company in the UK, it must have an articles of association. A company can chose to create and incorporate its own articles of association.
However if a company does not incorporate its own articles of association, the default articles of association from section 20(1)(a) of the Companies Act 2006 will become the companies articles of association. These are known as the model articles of association.
Model Articles of Association
There are three types of model articles of association.
a) Model articles of association for private companies limited by shares
b) Model articles of association for private companies limited by guarantee
c) Model articles of association for a public company
The most popular of these are the model articles of association for private companies limited by shares, since these are the most popular types of companies in the UK.
Articles of association list the organizational structure of company and allocate powers to and between the different sections of such as the board of directors and the shareholders.
The model articles of association for private companies limited by shares are made up of:
Part 1: Definitions and Interpretation
Part 2: Directors
Directors’ Powers & Responsibilities
Decision Making by Directors
Appointment of Directors
Part 3 Shares and Distributions
Dividends and other Distributions
Capitalization of Profits
Part 4 Decision-making by Shareholders
Organization of General Meetings
Voting at General Meetings
Part 5 Administrative Arrangements
Provisions which are placed in a company’s articles of association which violate UK law will be regarded as null and void. Furthermore a companies articles of associations cannot bring the company out of jurisdiction and rules of the mandatory provisions of the Companies Act 2006 or the Insolvency Act 1986.
A company’s articles of association binds the company to the extent that the company, its shareholders and directors have to comply with what their articles of association state in accordance with section 33(1) of the Companies Act 2006. Every person who becomes a shareholder in the company will be bound by the company’s articles of association.
The articles of association are exempt from the Contract (Rights of Third Parties) Act 1999, so that a third party cannot enforce a provision in the articles
If you need legal advice online regarding the articles of association of your company, you can speak to our Solicitors online right now.