The Model articles are the default set of articles for UK limited companies incorporated on or after 1 October 2009.
In this guide, we look at what Articles of Association and Model Articles are, as required when setting up a new company under UK law.
What are Articles of Association?
Articles of Association are a set of rules dictating how a company is run and are a necessary part of the company formation. They act as a manual for the day-to-day running of a business. They are essentially a contract between the company shareholders and the company itself as a legal entity. The provisions laid out in the Articles help to protect the interests of the shareholders. Company directors are also bound by the Articles in order that they fulfil their duties as directors and obligations towards the shareholders.
The Articles of Association are a public document which must be registered at Companies House on company formation, so they are open for public inspection. A copy of the Articles should also be held at the company’s registered office. Together with the Memorandum of Association, the two documents form a company’s constitution. Every UK private and public company is legally required to have Articles of Association on incorporation of the company.
Although there is no specific format for the Articles, certain key provisions do need to be included. In practice, however, standard Articles are often used which provide a useful template, which can be used as they stand or can be amended to better suit a company’s needs. Amongst other things, the Articles deal with the following:
- How directors are appointed and removed by the shareholders
- How dividends are paid
- How company shares are issued
- How shares are transferred
- How directors’ and shareholders’ meetings are set up and run
Does your company need Articles of Association?
Whether a business owner is forming a public limited company, or a private company limited by shares or guarantee, Articles of Association will always be required on a company’s formation in the UK. It is not possible to incorporate a company without them.
What should be included in the Articles of Association?
Articles of Association must all be contained in one document and formatted into consecutively numbered paragraphs which broadly cover the following areas:
As limited company structures, shareholder liability for any financial loss the company incurs is restricted and is limited to the fixed nominal value of their shares, usually £1 per share (or to their guarantees if guarantors).
The powers and responsibilities the company directors have and what decisions they can make should be included, as well as provision for how they are appointed and remunerated and how their positions are terminated.
Shares and distributions
The number and types of shares issued should be specified as well as what rights attach to those shares and the method for issuing and transferring them.
Payment of Dividends
How these are to be paid out by the company.
How decisions are made between the shareholders, the organisation of general meetings and how the voting process is conducted including how many shareholders need to be present at the meetings.
Any other administrative provisions
This includes how notices are given to shareholders and other forms of company communication, inspection of company records, and directors’ indemnity and insurance.
What are the ‘Model’ Articles?
Any company formed before 1st October 2009 may have adopted the ‘Table A’ Articles which were the default standard articles prior to this date. These Articles were updated by legislation and after this date, any new limited company can use the Model Articles which became the new standard default Articles governed by the Companies Act 2006 and provided by Companies House under The Companies (Model Articles) Regulations 2008. These Model Articles can be found on the government website and can be used exactly as they are, or they can be adapted to suit a company’s needs either at the beginning on incorporation or as the company progresses and its needs change.
Three versions of these Model Articles are available for the three different UK company structures: private companies limited by shares, private companies limited by guarantee and public limited companies or PLCs. These Model Articles will automatically apply to a company on incorporation, unless a business owner wants to adopt an altered version or create a bespoke set of Articles from scratch. At any rate, they provide an ideal starting point when thinking of starting up a company.
The Model Articles are best suited to small companies where there is little chance of dispute between the shareholders and the directors but can be tailored to suit the needs of any company. They can also be used for companies with one director who is also the sole shareholder (which is a common occurrence), despite the ambiguity in the Model Articles. Articles 11(2) and 7(2) must be read together to fully understand the quorum provision at meetings for companies with a sole director and shareholder.
The Model Articles are however less suitable in some circumstances (although can still be amended) which include where a company wishes to:
- Issue more than one class of share or another class other than ordinary shares
- Appoint alternate directors
- Give pre-emption rights (a right of first refusal) to existing shareholders when new shares are issued or when shares are up for sale
- Appoint a company secretary
- Restrict or grant additional powers to directors
- Give and hold virtual meetings which has become quite commonplace since Covid
- Require a private limited company to hold AGMs
- Remove conflict provisions preventing directors from voting if there is a conflict of interest
Holding companies and subsidiary companies and joint venture structures would not usually use the Model Articles as they are more complex arrangements and would therefore either need tailored Articles or bespoke Articles. A shareholders’ agreement will often supplement the Articles in a joint venture.
What’s the difference between the Articles of Association and the Memorandum of Association?
Both the Articles of Association and the Memorandum of Association are documents which are needed to form a company. The Memorandum is by contrast a far briefer document detailing the essential details of the company, such as its name and date of incorporation, whether it is limited by shares or by guarantee and who the shareholders are and how many shares each has. It comes in a standard format (templates of which can be obtained from Companies House), which cannot be amended or updated as its purpose is to provide the details of the company as they stood at that time. The subscribers should all sign the document demonstrating their consent to setting up the company.
How are Shareholders’ Agreements different from Articles of Association?
Although shareholders’ agreements are not mandatory when forming a company, they are often useful to cover any matters that are not provided for in the Articles. As shareholders’ agreements are not in the public domain (whereas Articles can be viewed online), they are useful where a company wants to keep certain aspects of the day-to-day management private and are a good way of demonstrating to potential investors that the business is stable and well-organised.
There are many reasons where a company may wish to use a shareholders’ agreement, and these include:
- Articles of Association do not cover the situation where shareholders are in dispute over a certain company issue, so shareholders’ agreements are often used to specify the procedure for resolving any dispute.
- A shareholders’ agreement can give extra protection to minority shareholders who might find themselves overruled by a majority.
- A right of pre-emption can be given to existing shareholders on the issue of new shares or the transfer of existing ones.
Provision can be made for what happens if a shareholder dies or is incapacitated.
- Shareholders’ agreements can be drafted alongside employment contracts and service contracts.
- Although a company’s directors are generally responsible for the everyday running of the company, a shareholders’ agreement can provide that certain decisions have to be taken by shareholders too.
- Extra provision for the payment of dividends can be included in a shareholders’ agreement.
Amending Articles of Association
The Model Articles provide a good template for companies to start with. However, they may not suit the needs of every company and they can be amended accordingly either at the incorporation of the company or as the company’s needs change over time.
If there is a genuine need for a change in the Articles after the company has been formed, any amendments to be made are relatively easy to execute, provided they are done in accordance with the relevant UK company law. This states that the shareholders can agree a change to the Articles by passing a ‘special resolution’, which is a 75% majority approval. Such resolution can be done either by way of a written resolution or in a shareholders’ meeting. The former requires a copy of the written resolution and a copy of the amended articles to be sent to Companies House within 15 days of the resolution having been passed. The latter requires the directors calling a shareholders’ general meeting, in which the proposed special resolution is voted upon, and again a 75% majority is needed for the resolution to be approved. The amended Articles and special resolution should then be sent to Companies House. (If a company reverts back to the Model Articles, a copy of the Articles does not need to be sent.)
If a company fails to send the new Articles within the 15-day timeframe, this is in breach of company law and the directors may be liable to a fine, although they will be given notice first. The amended Articles will still be valid.
Can Articles of Association override the law?
The Articles of Association are still subject to the relevant statutory law, most specifically the Companies Act 2006 and must be read in conjunction with it. Therefore, if the provisions of the Articles are contrary to the Companies Act 2006, the latter will override the Articles in most circumstances. If bespoke or amended Articles do not make provision for certain scenarios, the Model Articles will apply to fill those gaps.
Model articles FAQs
What are the Model Articles for private companies?
Standard Articles of Association for either private limited companies or public limited companies are known as Model Articles, which are used as a good foundation when incorporating a company.
What kind of companies have Model Articles?
There are three templates for Model Articles, which apply to all companies formed after 1st October 2009. These are for private companies limited by shares, private companies limited by guarantee or public limited companies. All three are available at Companies House. Any company which still has ‘Table A’ Articles may find the provisions are out of date and not compliant with company legislation.
Who do the Model Articles apply to?
Model Articles are designed to be a ‘one size fits all’ template, but often companies amend them to better suit their needs, either at the time of incorporation or as the company’s needs change. Sometimes, a company will create bespoke Articles from scratch. The Model Articles best suit a small company with limited risk of dispute between directors and shareholders.
Do model articles allow the purchase of own shares?
No, the Model Articles are not suitable where a company wishes to give rights of pre-emption to existing shareholders when new shares are issued or when existing shares are transferred. Therefore, an amendment to the Model Articles may be required in these circumstances.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.