Warning: this blog post is 8 out of 10 on the Accountancy Nerd Scale. I make no apologies.
Nowadays, forming a limited company is very straightforward. Online service providers mean that it can be done in as little as 10 minutes for a simple one director one shareholder setup.
What are Articles of Association?
You may not realise that legal governing documents are created on company inception. These are called the "Articles of Association" and set out how a company is run, governed and owned. Most companies adopt the "model" articles, which are are prescribed by the Companies Act 2006. Note that is possible to update your company's articles of association to suit your requirements.
This blog post focusses on the model articles for private companies limited by shares, which is the one that most people will come across. The official Companies House link can be found here.

Nenad Stojkovic (c) https://flic.kr/p/2mLERMa
What Does it Mean for Me?
Most people don't read their company's articles of association. This blog post isn't intended to be comprehensive. Instead, this blog post draws out five points which you may not have thought about when adopting the model articles from an accountant's perspective:
"The liability of the members is limited to the amount, if any, unpaid on the shares held by them" (article 2). This is the cornerstone of "limited liability", which is one of the key reasons why people like to form limited companies. You can only use the money you put in. The alternative is unlimited personal liability. This pooling of risk and limiting of liability in corporations was one of the key drivers of the industrial revolution. A few words form a key paragraph.
Article 17 deals with how directors are appointed. Typically, directors are appointed by ordinary resolution (> 50% of shareholder votes) or by the decision of other directors. However, there are specific procedures in the event of death that are worth reading on. These could factor into estate or succession planning.
Article 27 as talks about share titles being passed to a transmittee, who is a person entitled to a share by reason of the death or bankruptcy of a shareholder. A transmittee isn't the same as a shareholder so doesn't automatically share the same rights. For example, they can't vote at general meetings. They can become a shareholder by producing evidence to the directors.
One of the main practical reasons to form a company is to pay out dividends to shareholders. There is an entire section devoted to shares and distributions (one of five). Article 30 specifically deals with the process for declaring dividends. In short, dividends are declared by ordinary resolution and directors may pay out interim dividends.
The directors are responsible for management of the company's business so there is a large section around decision-making (part 4). The general rule about decision-making is that any decision must be either a majority decision at a meeting (article 7) or a unanimous decision taken in accordance with article 8. In the event of a tie, the Chairman of the meeting has the casting vote (article 13). If this is unsatisfactory then enhanced article of association may be required.
Is There Anything Else Interesting in Here?
Well, because you asked:
You can have a company seal (article 49) but you still need a director's signature next to it. So, company seals are pointless? Or do they make a nice Christmas gift?
A resolution put to the vote of a general meeting must be decided on a show of hands (article 42). This is as opposed to a poll. Who would have thought it would be this specific?
The company can pay directors expenses for attending different kinds of meetings (article 20). I'm not sure what this paragraph adds, but it's there.
Shareholders have a right to a share certificate and a right to a replacement share certificate if the original is damaged (for a reasonable fee). See articles 24 and 25.
What Should I Do Now?
Before setting up a company, decide on a share-holding and governance structure that is appropriate for your needs and consider if the model articles of association need adapting.
Consider if the model articles are appropriate for your estate (will) planning and succession planning needs. Consult professional advice if required.
Consider if the model articles are appropriate for decision-making by the directors. The more complex the business, the greater the need for enhancements on the model articles. This excellent article by Inform Direct gives suggestions on possible enhancements.
In Summary
The model articles of association are appropriate for simple circumstances but beyond that you should consider appropriate modifications.
Disclaimer:
I'm not a lawyer and this blog post does not constitute legal advice. At the time of writing (October 2023), the model articles apply from 28 April 2013. You are responsible for familiarising yourself with your company's articles of association.
Comentários