Articles of Association: It pays to be prepared

During the process of forming your company, you will have an important choice: What Articles of Association (‘Articles’) will you use? Perhaps you think the Model Articles will suit you fine but consider this, they have been prepared to work for all companies, large and small, general and niche. If your company is unique, your articles may need to be too.

Articles are the instructions for how to run your company, and they affect almost everything from your first board meeting to when your company is wound up. Not only that, but acting in breach of the Articles is an offence, and changing your Articles later can consume valuable business resources.

In selecting the Articles that will suit you best, these are generally the standard options you have upon incorporation (more complex requirements may vary):

  • Choose the model set of Articles, with the standard set of restrictions they impose;
  • Choose Jordans’ own set of Articles, which were drafted by lead counsel to provide the greatest flexibility to new companies; or
  • Choose to have your own bespoke set of Articles drafted to your requirements

Consider these 5 key points when deciding which Articles of Association will suit your company best:

1) Directors

Your Articles determine how the director(s) will operate and make decisions. As soon as your company gains more members or directors, the rules relating to directors’ powers, their appointment and removal will really start to matter. It’s important to check what restrictions you have on your directors to avoid later conflicts or loss of control.

2) Liability and Shares

The liability of your company is decided by your Articles – either unlimited, or limited by shares or guarantee. If you select a company that is limited by shares, your Articles will determine the types of shares, who can control them and how they are issued, sold and transferred. If you want to keep control within the family for instance, different share classes could be set out in the Articles.

3) Profits

Your Articles also detail what should happen to the profits of the company, such as how dividends are declared, how they are paid and what can be done with unclaimed distributions. It’s worth checking how you want your company to handle these to avoid later conflicts or costs.

4) Votes and Control

As you can imagine, how the Articles set out voting rights and meeting regulations can have a significant impact on the practical running of the company. You could limit voting rights according to share class, or raise your quorum to protect shareholders from having meetings conducted without them.

5) Winding Up

If your company is being wound-up, your Articles will determine the procedure. This will include who is paid and in what order if any dividends are left, and if you want to keep profit within the family as much as possible, prioritised payment during winding up might be something to consider.

It pays to be prepared when you’re ready to start forming the company you’ve always wanted, so giving time and consideration to your Articles of Association will pay off in the long run. If you need further guidance, our UK Company Formations Team can help with this, as well as any other questions about the complete formations process.

Which articles do you find suits your business best? Tweet us to share your thoughts.

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