What are articles of association?
The basics: Articles of association set out the rules and regulations of how a company should be run. The articles govern the rights, powers and responsibilities of a company, its shareholders and directors. It also outlines the procedures for how shares will be dealt with, making decisions, appointing directors and conducting meetings.
Legal necessity: Company law requires every company to have articles of association that are contained in a single document and divided into numbered paragraphs. A company can choose to adopt a set of default 'model articles' or adopt its own custom set of articles which are based on the model articles.
A contract based on company law, not a deal: Although the articles of association form the governing ‘rule book’ of a company, the articles are essentially a legally binding contract between the company and its shareholders. However, the articles are a special type of contract that do not follow usual contract law principles. For example, the articles of association can only be adopted or altered by passing a special resolution.
What is a special resolution?
Shareholders and/or directors of a company act by making formal decisions (known as resolutions) at meetings or by written resolution. To adopt these articles, a company's shareholders will need to pass a special resolution. Special resolutions are typically required for more critical or sensitive company decisions like altering the company's articles or changing the company name.
To pass a special resolution there needs to be:
a majority vote of not less than 75% of the shareholders who attend a general meeting if taken on a show of hands; or
not less than 75% of the total voting rights at a general meeting if taken on a poll or passed by written resolution.
What are the benefits of using Docue’s articles of association templates?
Take control of the company's rule book: The importance of articles of association goes beyond the reach of simply meeting legal requirements. They 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.
Additional rights that aren’t in the model articles: The terms in this template are based on the model articles for private companies limited by shares. However, this articles of association template gives you the option to include some modifications from the model articles including:
Pre-emption rights: A process that gives existing shareholders the right to be offered any new or existing shares before they are offered to anyone else.
Drag along right: Provisions that give the right to the majority shareholders to require the minority shareholders to sell their shares to a buyer at the same price and on the same terms as offered to the majority shareholders.
Tag along right: Provisions enabling the minority shareholders to require the majority shareholders to obtain the sale of their shares to a buyer at the same price and on the same terms as offered to the majority shareholders.
Have the company’s rules in one place: The clauses (articles) in this template are based on the model articles for private companies limited by shares. They incorporate the text of the model articles in full to avoid the need to refer to the new modified clauses separately from the model articles. For more information about the model articles, check out this blog.
When should I use articles of association?
Your articles of association are a fundamental document for the day-to-day running of your business. As it will be the rule book 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.
You can use this template to determine a single class of ordinary shares.
What are the key terms that articles of association based on the model articles should include?
Docue's articles of association template includes the following key provisions:
Directors: This section will set out key procedures and rules relating to the directors of the business. This includes things like the appointment of directors, termination, and the chairing of board meetings.
Share capital: This section of the articles of association template includes information on the rights attached to shares, payment of dividends, and share certificates.
Dealings with shares: This section sets out key information relating to the transfer of shares, when share transfers are permitted, and the rights associated with share transfers.
Shareholder’s decision-making: This section outlines how shareholders will make decisions. It also refers to general meetings, voting powers, and disputes.
Administrative provisions: The final part of this articles of association template includes information on administrative provisions, i.e. the liability of shareholders, director’s borrowing powers, and indemnity and insurance.
Designed by lawyers: 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 template drafting process. This means your business is equipped with the detail needed to meet legal requirements.
Easy to use: To create your articles of association with confidence and speed, simply click through the tick box options and you’ll have comprehensive, tailored, and ready-to-use articles of association in the click of a button.
Affordable: At Docue we’re determined to equip businesses with high-quality and quickly available contract and legal document templates, without the usual law firm bill or lengthy waiting time.
Speedy service: The articles of association template is instantly available at your fingertips via the Docue platform. All Docue templates come at a fraction of the usual cost and waiting time of a traditional law firm - without sacrificing quality!
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Tags: model articles, tag along, drag along, share capital, pre-emption rights, transfer of shares, valuation, dividends, general meetings, board meetings