Key legal documents: Articles of Association

A series looking at key legal documents. This week: Articles of Association 

What’s this document all about?

The articles of association (commonly referred to as just ‘articles’) is a key constitutional document and all registered companies must have a set of articles (section 18 Companies Act 2006). It is a set of rules and regulations used to govern a company, its purpose and affairs.

The articles will contain the duties, rights and responsibilities of the members of the company and create a relationship between the company and each member. The articles will also contain the powers and duties of the board of directors, how they are appointed and, quite often, by whom.

A company may, to an extent, define the content of its articles, however, it will be subject to the Companies Acts (and indeed, it is worth noting that the Companies Act overrules the articles). There are many types of articles a company may have, depending on what type of company it is and when it was incorporated.

For example, companies limited by shares and incorporated on or after 1 October 2009 are likely to have adopted the model articles set out in the Companies (Model Articles) Regulations 2008. However, a private company limited by shares incorporated under the Companies Act 1985 may still have Table A Companies (Table A to F) Regulations (as amended).

Under the Companies Act 1985, the articles of association was accompanied by the memorandum of association. The memorandum historically contained the company’s objects. Under the Companies Act 2006, the memorandum is a much simplified document and its content is now incorporated within and treated as part of the articles (s28 Companies Act 2006).

Articles can be amended by special resolution of the company pursuant to s21 Companies Act 2006. All amendments must be registered at Companies House.

In what practice areas would you expect to find this document?

Articles crop up most commonly in corporate and transactional practice areas; however, any time you are dealing with a company, you may need to consult the articles of association, which are readily available online as a public document at Companies House (for a small fee).

Megan Paul
Megan Paul, Mayer Brown

What are the key sections?

The articles governs the dealings of the company, its shareholders and its directors. Most acts as between the shareholders and the company and the directors are set out in the articles. The transfer and issue of shares, shareholder meetings, the rights attaching to shares are all covered from a shareholder perspective. Likewise, appointment and removal of directors, meetings of the board and powers and duties of directors are captured here for the governance of the board.

What are the main subtleties?

As detailed above, the type of company you are seeking to incorporate (or perhaps re-register) will dictate the template articles you use. A private company limited by shares will likely adopt the Model Articles for such company.

Other subtleties will depend on the requirements of the company. For example, if there are a number of share classes, what rights attach to the different classes and how they interact with each other, for example on liquidation, will need to be set out in the articles. Particular rights such as anti-dilution, voting rights and proxies will also be set out in the articles.

Some rights or powers need to be set out in the articles for a company to benefit from the protections or powers that they might afford. For example, the Companies Act 2006 sets out particular provisions around the authority to approve conflicts of interest for directors. In order to benefit from these provisions under the Companies Act 2006, it is important that this topic is addressed in a the company’s articles. However, it is worth noting that not all such rights or powers are available to public companies.

What involvement would a trainee expect get on this document?

This is an easy one, which can be summed up in two words: ‘company search’. As a trainee in corporate, you may be asked (more than once or twice!) to conduct due diligence on a company. As the constitutional documents of a company are available on public record, it is possible to obtain them from Companies House (again, for a small fee).

Once you have obtained the constitutional documents, you will review them and record certain pieces of information that allow your fee earners to better understand the company, what it may borrow, whether there are any restrictions to the transfer of shares or how many directors are required to hold a quorate board meeting, for example.

How fiendishly complex is it?

For a private company with a small number of shareholders holding ordinary shares, it is likely that the articles of association will be relatively straight-forward and adhere to the model articles (if incorporated after 1 October 2009). However, if there are multiple share classes with different rights attaching to them and multiple shareholders (including institutional investors), the articles are likely to be complex and involved with anti-dilution rights, director appointment and observer rights, complicated share transfers and pre-emption provisions including drag and tag mechanisms.

Articles can be difficult to understand at times (and hit way past 10 on the fiendishly complex scale!). They can seem unfamiliar at first, particularly if you have not yet started your LPC. However, once you’ve read a set a couple of times you’ll start to recognise the usual provisions.

Megan Paul is a senior associate at Mayer Brown

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