Articles of Association in Company Law

The articles of association are one of the most important legal documents for any limited company. They form the internal rulebook that governs how the company is run, setting out the responsibilities of directors, the rights of shareholders and the procedures for making key decisions.

Under UK company law, every company must have articles of association. Whether you are forming a new business or reviewing the structure of an existing one, it is essential to understand what the articles do, how they are created and how they can be changed over time.

What are articles of association?

The articles of association are a written document that sets out the company's internal management rules. They work alongside the Companies Act 2006 and define how the company will operate on a day-to-day basis. Together with the memorandum of association, they form the company’s constitution.

The articles cover a wide range of matters, including:

• How directors are appointed, removed and paid

• How board meetings and shareholder meetings are held

• How shares can be issued, transferred or bought back

• How dividends are paid

• The rights attached to different classes of shares

• Decision-making processes for both directors and shareholders

In short, the articles act as a contract between the company and its members, and between the members themselves.

Model articles vs bespoke articles

When you register a company in the UK, you can choose to adopt model articles provided by Companies House or create bespoke articles tailored to your specific needs.

The model articles are a standard set of rules that are suitable for many small businesses, especially those with a single director and shareholder. They are designed to be simple and compliant with the law.

However, some businesses require more flexibility or need to include additional provisions. For example, if a company has multiple shareholders, it may want to include pre-emption rights, drag-along or tag-along clauses, or restrictions on share transfers. In these cases, bespoke articles may be more appropriate.

Once a company is incorporated, the articles become a public document, accessible through Companies House. Directors and shareholders should be familiar with the articles to ensure that the company is being run in line with its own rules.

Changing the articles

Over time, a company may wish to amend its articles of association. This could be to reflect changes in ownership, accommodate new classes of shares or update decision-making procedures.

To change the articles, the company must pass a special resolution of the shareholders, meaning at least 75 percent of the votes cast must be in favour. The revised articles must then be submitted to Companies House within 15 days of the resolution being passed.

It is important to ensure that any changes are lawful, consistent with the Companies Act and clearly drafted to avoid confusion or disputes later on.

Articles of association vs shareholders’ agreements

While articles of association are a public document and legally binding, many companies also have a shareholders’ agreement. This is a private contract between shareholders that can deal with matters not covered in the articles or offer additional protection.

For example, a shareholders’ agreement might include provisions about how new shareholders can join, how profits are distributed or how disputes are resolved. While the two documents should complement each other, the articles take legal priority if there is a conflict.

It is good practice for companies with multiple shareholders to have both documents in place, especially where outside investors or family members are involved.

Why articles of association matter

The articles provide clarity and certainty in how the company is governed. They protect both the company and its shareholders by ensuring that everyone understands their rights and obligations. Well-drafted articles reduce the risk of disputes, make it easier to manage growth and can even help when raising investment.

For directors, the articles provide the framework for making decisions, managing board meetings and acting within the company’s powers. For shareholders, they help protect voting rights, dividend entitlements and the process for selling or issuing shares.

Ignoring or misunderstanding the articles can lead to mistakes, delays in decision-making or even legal claims if a director or shareholder acts outside the agreed rules.

Final thoughts

Articles of association are more than just a formal requirement. They are a critical part of a company’s legal structure and should be treated with care and attention. Whether you use the model articles or create your own, it is important that the document reflects how your company really works.

If you are unsure whether your articles are fit for purpose, or if your business has changed significantly since incorporation, it may be time to review and update them. Seeking legal advice can ensure your articles are properly drafted, compliant with the law and aligned with your commercial goals.