If you have set up a company recently, or in the past, you will be familiar with its Articles of Association (Articles). Or maybe you haven’t looked at them at all or ever wondered what role the Articles play in a company. In short, the Articles are an integral part of every Company and amount to its rule book for daily operating purposes.
Sitting alongside the Articles is the Memorandum of Association (Memorandum) which is also a necessary document when forming a Limited Company. It deals with the Company name, date of incorporation, the names of the ‘subscribers to the memorandum’ (individuals forming a company) the number of shares taken by each subscriber/shareholder and whether the company is to be limited by shares or guarantee.
The Articles create a binding agreement between the shareholders (as shareholders) of the Company and the Company itself and are a creation of The Companies Act 2006.
The Companies Act 2006 (the Act) provide a model form of articles in ‘Table A’ of the Act. Since 2009 a newly created company can adopt these model articles in place of drafting a bespoke set. The model articles provide for most but not all the needs of shareholders and directors, so the articles of the Company based on Table A can be amended from the start or by shareholders later on if circumstances change and the size and shape of the Company demands changes to be made to them.
However, something more needs to be considered, over and above the prescription of the Articles of Association vis-à-vis the shareholders to make their relationship work smoothly (and possibly better if that relationship has broken down altogether). At this point the shareholders need to give serious consideration to regulating their various interests as shareholders. This can be done through a shareholders’ agreement, which is an agreement between them and regulates their relationship as shareholders. The Agreement can be used to expand the Articles by covering new areas of the relationship but most importantly of all, it is the document that can be relied upon to deal with disputes between shareholders, e.g. In relation to the transfer of shares when some, none or all shareholders want to sell up or just transfer shares. The Shareholders Agreement is a private agreement i.e. one that is between the shareholders and not on the public record.
Note: If you think your Company’s Articles of Association and/or Shareholders Agreement need a review, then contact Jarmans Solicitors. If there is no Shareholders Agreement in place we can help you prepare and put one in place thereby avoiding possible conflict at a later date.