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Articles of Association – Get it right at the start

All companies require either the model articles or bespoke articles of association upon incorporation and it is these articles which outline the rules that the company’s officers must adhere to when running the company.

It is often the case that these articles should be as unique as your business and therefore, during the company formation process, we offer a choice of articles to ensure you can get it right at the start.
 

These options include:

  • Jordans articles of association, which have been settled after consultation with counsel from leading chambers and combine the advantages of standard articles together with a range of additional powers.
  • Articles issued by Companies House, which are the standard default articles a company can use.
  • The option to upload articles of association, either for a single company formation or for general use across many formations.

What if these articles aren’t specific enough for your company?
In addition to these articles, we offer a range of optional articles which can give peace of mind and protect against future possible eventualities. These optional articles can be included for as little as £45 + VAT when applied during your formation and may save you valuable business resources compared to adding them later.

With a range of optional articles how do you know which ones to choose or when it is appropriate to apply them? To help answer this, Karina James-Wiltshire from Jordans Corporate Law has provided examples of appropriate circumstances.

Q: I am thinking of setting up a company with another individual and I foresee that there may be future decisions where we may not be able to agree. What do you recommend?

A: The first place to start is with the articles of association (the rule book of the company). Our standard articles of association for a single class of shares do not have any provisions to resolve such a situation. However, we do offer additional articles.

One of these additional articles provides for a “chairman’s casting vote”. This article gives a chairman who is already a shareholder a casting vote in the event of an equality of votes on any resolution at a general meeting. This provision would be very useful to prevent a deadlock situation.

We also provide an additional article for “enhanced voting rights for directors”. This article reinforces the position of a Director who is also a shareholder by giving such Director additional votes per share on a resolution to remove him from office or amend or delete this article.

There is also the option of having a shareholder agreement which we could also provide and custom draft for your circumstances.

Q. My son wants to set up a business and I have agreed that I would be a shareholder and invest money in the company. However, I do not want him to make decisions independently. What options are available to me?

A: We provide an additional article to remove a director’s power to authorise any matters where he has a direct or indirect conflict of interest. This article gives the shareholder(s) the option to authorise by ordinary resolution a matter which would otherwise involve a director breaching his duty under section 175 of the Companies Act 2006.

Alternatively, you could form the company with share classes within the articles of association. For example, you could hold the “A” shares and your son could hold the “B” shares. We could draft bespoke provisions within the articles which would require the prior approval of the “A” shareholder (you). If your son decided he wanted to appoint another director he could only do so with your approval. Or if he wanted to declare dividends again he would need to seek your approval.

 

If you require the addition of optional articles during your company formation, or if you feel that a set of bespoke articles would be more appropriate, our Company Formations team will be pleased to guide you through the process. Contact Karen or call 0117 918 1391 for more information.

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