25/08/2022

Articles of Association: A Guide for Small Business & Startups in the UK

Articles of Association are a company’s constitution, so you can think of them as the governing document, forming a contract between the business and its shareholders.

An image representing Articles of Association for a UK business

When building a business few phrases pop up so frequently as “Articles of Association”.

A well-drafted Articles of Association will outline a number of key rules relating to the business, including the appointment of directors, board meeting standards, and administrative issues.

Not only are Articles of Association a legal requirement for a limited company registered in England and Wales, but they can also include more bespoke information around how the company deals with shares, shareholders, and shareholder rights.

As you can appreciate, Articles of Association can evolve into particularly complex documents, which is where an Articles of Association template can come in handy. Before drafting Articles of Association that will serve your business well in the long term , it helps to understand what they are, what they achieve, and what an Articles of Association template needs to include.

So, you’re setting up a business. What should your Articles of Association include?

Setting up a private limited company? You’ll need a Memorandum and Articles of Association

Articles of Association are a fundamental document to incorporate a private limited company by shares, in England and Wales. It’s a publicly available document that needs to be filed at Companies House. You can think of the Articles of Association as a company’s governing constitutional document, which sets out what the company can, and can’t, do. This includes:

  • The rights of the shareholders of the company. (For example, voting rights, dividends, and what happens if the company is being wound up);

  • Who makes which decisions (For example, shareholders or directors);

  • The procedure for distributing dividends; and

  • Procedures and protections when it comes to issuing and transferring company shares.

Does an SME company need Articles of Association?

As an SME you may be wondering, do I need Articles of Association? In short, yes! If you’re a private company limited by shares, Articles of Association are a legal requirement. However, their importance goes beyond the reach of simply meeting legal requirements.

Articles of Association will set out rights associated with shares and will essentially serve as the company bible when it comes to the roles and responsibilities of both the shareholders and directors (which are also governed by statute). Well-drafted Articles of Association will bind all shareholders to a set of core rules and will serve as blueprints for how the company and its shareholders will need to conduct themselves.

What do the Articles of Association include?

We’ve explained what Articles of Association are, and what they’re intended to achieve. But what should an Articles of Association template include? Let’s break this down into parts.

The basics: It goes without saying that an Articles of Association template should cover the basics. This includes the company name and the purpose of the company. From here your template should start to break down into sections.

Directors: An Articles of Association template will include information on the directors within the business. This includes things like the appointment of directors, termination of directors’ appointments, and the chairing of board meetings.

Share capital: Your Articles of Association template will need to include details on share capital. This includes information on the rights attached to shares, payment of dividends, and share certificates.

Dealings with shares: This section of the Articles of Association template will include information related to the transfer of shares, when share transfers are permitted, and the rights associated with share transfers.

Shareholder’s decision-making: A particularly important part of your Articles of Association template relates to shareholders’ decision-making. This section refers to general meetings, voting powers, and disputes.

Administrative provisions: The final part of your Articles of Association template should include information on administrative provisions. This includes the liability of shareholders, director’s borrowing powers, and indemnity and insurance.

We’ve covered what your Articles of Association template should include, but how might you go about using this template? At Docue we’ve made implementing Articles of Association easy, by creating a cost-effective and lawyer-made Articles of Association template that’s easy for your business to customise, implement and store via the Docue platform. Simply open up the template and follow Docue’s easy-to-use lawyer-made guidelines for creating Articles of Association bespoke to your business. With just a few clicks in the Docue platform you will be ready to file your completed Articles of Association at Companies House. Then you can get down to the real business and leave your admin safely completed in the background!

Model Articles of Association for limited companies

If your private limited company was incorporated on or after the 1st of October 2009, you’re required to have Articles of Association that align with the “Model Articles” that are set out in the Companies Act. If no articles are registered, then the “Model Articles” will automatically apply as the default position.

A limited company incorporated before the 1st of October 2009 may have chosen to adopt the “Standard Articles”. This was a format required under the previous Companies Act 1985.

So, what does this mean for you?

The “Model Articles” have evolved over time, which is why it’s important to check which ones apply when you incorporate your company. Fortunately, you can do this on the UK Government’s website.

Let’s take an example: what model documents might be relevant for early-stage investments?

When you’re at the early stages it’s important not to overcomplicate things, while carefully considering what you have negotiated with your investors. It’s likely that amendments will need to be made to your Articles of Association following these negotiations. It’s also likely that you’ll need to implement (or, if you have them in place already, update) a subscription agreement, shareholders’ agreement, or investment agreement. This new investment might result in:

  • A new “class” of shares being created, with different share rights being given to the investors.

  • Rights arising for investors to have a seat on the board, to appoint someone onto the board or to have a right to attend board meetings of the directors (“board observer” rights).

  • Rights for certain investors to see certain information about the company. For example, its accounts.

  • Certain “reserved matters” to be provided for which may require a certain level of shareholder approval or even “investor consent”. For example, the allotment and issue of new shares, changes to a company’s business plan, the appointment of a certain level of employee, the taking on of a certain level of finance, or the creation of a share option pool.

  • Protections for the founder(s) to maintain controls surrounding decision-making.

  • Restrictions on the founder(s) and things they might do in competition with the company.

Any number of the above may need to be updated within your Articles of Association or the investment documentation depending on the circumstances of the investment and what’s been negotiated.

When should I use the Articles of Association?

Your Articles of Association are a fundamental document for the day-to-day running of your business. As the would-be constitution of your business, you would refer to this document when tackling issues related to shares, directors, board meetings, and administrative tasks. You would also return to your Articles of Association when they need to be amended or updated.

What are the costs and timelines involved?

Costs and timelines related to having a law firm draft your Articles of Association can vary wildly and are very much dependent on whether a limited company adopts model articles. If your needs are more nuanced and you require a full set of Articles of Association with various bolstered rights and protections, then this will be a more bespoke piece of work with a higher fee and longer waiting time attached.

On average, however, you can expect a law firm to charge anywhere from £1,500 + VAT to £3,000 + VAT to provide your business with a well-crafted Articles of Association document - a hefty fee for any business starting out. You may also be waiting at least a couple of weeks for a well regarded law firm to fit the drafting of your Articles of Association into their busy schedule. Again, not ideal if you are a start-up business and just want to get going!

At Docue we’re determined to equip businesses with high-quality and quickly available contract and legal document templates, without the legal price tag or the lengthy waiting time. The Articles of Association template is instantly available at your fingertips via the Docue platform and has been hand-crafted by UK-qualified lawyers, including intelligent custom edit options in the form of tick boxes and text boxes to ensure you can make your Articles of Association bespoke to your business quickly and cost effectively. All Docue templates come at a fraction of the usual cost and waiting time of a traditional law firm, without sacrificing quality.

How to create Articles of Association

Given the importance of your Articles of Association, you’ll want to take the time to ensure they’re fit for purpose. This is a document you’ll return to time and time again, and it will be publicly available at Companies House for all eyes to see. With that in mind, it helps to take the time to draft it in detail.

Before creating your Articles of Association, it’s important to remember that they’ll be subject to the Companies Act 2006. However, it’s recognised that not all of the Companies Act 2006 provisions will be suitable for all companies. In this scenario, the act allows a company to include, vary, or exclude certain provisions.

When it comes to actually creating your Articles of Association, most companies will look at the model articles as a starting point. These may be sufficient to get your company started, however, this document will in many ways act as your company constitution, so it’s important it accurately reflects how your company operates day to day.

With that in mind, it can help to seek out legal advice to figure out the most appropriate constitution for your business. Alternatively, a lawyer-drafted Articles of Association template available via the Docue platform can be a particularly valuable asset when starting out. You can create, update, customise, and store your Articles of Association quickly and cost effectively using the Docue platform. This will allow you to leverage the expertise of a legal team, without incurring their costs.

Often the model articles are adopted in the first instance, but they can also be amended and modified at that stage. For example, by excluding certain aspects of the model articles that the company doesn’t want to apply. You can easily and quickly implement these type of amendments using the tick box options and lawyer-made guidelines within the Docue platform. In addition, if you are unsure about the approach you can always get instant chat support from Docue’s lawyers via the “Ask a Lawyer” feature.

How to amend Articles of Association

As your business evolves, your Articles of Association will need to undergo amendments. To do this, it’s not as simple as editing the document and ending the job there. As the Articles of Association are your company constitution, you’ll need to pass what’s referred to as a “written special resolution” of the company’s shareholders in order to amend your Articles of Association. A lawyer-made template for this type of written resolution is also available via the Docue platform. So you can easily create, customise, e-sign and store the written resolution using the Docue platform as necessary to support the amendments to your Articles of Association. As with all other templates on the Docue platform, you can utilise lawyer-crafted guidelines, intelligent tick box options, and instant chat lawyer support in order to create your document.

This is usually approved and circulated at a board meeting of the company’s directors. From there, it is circulated to all of the company’s shareholders that are entitled to vote. In order for a “special resolution” to be passed, thereby approving the amendments to the Articles of Association, a minimum of 75% voting majority is required.

Once passed, a copy of the written resolution and the Articles of Association must be filed with the registrar of companies at Companies House within 15 days. You can also use Docue’s handy automatic archive feature to store the completed documents within the Docue platform.

Get instant legal assistance making your Articles of Association from Docue

As a legally required document for limited companies, it’s important to get your Articles of Association right. You want to focus on creating something that’s fit for purpose, which ensures you don’t breach any of your legal obligations as a limited company.

Our Articles of Association template is drafted by UK-qualified lawyers and contains lawyer-crafted guidelines to steer you through every section of the Articles of Association drafting process, meaning your business is equipped with the detail needed to meet with requirements. Not only that, but we also provide instant chat access to our Docue lawyers, who can help you assess whether your Articles of Association template needs a little bespoke treatment.

Final Thoughts

By now you might be able to tell: your Articles of Association are pretty important. They provide foundations for your business to move forward and serve as a bible for the relationship between your company and its shareholders.

As your business evolves, your Articles of Association will need to evolve with it, underlying the importance of beginning with an Articles of Association template that prepares you for the road ahead. At Docue, our Articles of Association template is designed to get your business on the right foot, with room to edit, evolve, and amend.

Ready to get started? Create an Articles of Association Document Now

Docue Legal Team

25/08/2022