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By valero
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It is quite sure you are ready to set up your company in the UK after reading our articles. You have the idea, the name, you already are familiar to the Companies House or His Majesty’s Revenue & Customs… But now it’s time to continue shaping your company. Today we explain how to draft a company’s articles of association in the UK.
Articles of association are basically a company’s instruction manual. A good first draft and you will avoid problems in the future. Although it sounds formal, it doesn’t have to be complicated. And that is what we explain in this new article.
What the articles of association are
The articles of association are a mandatory legal document when you register a company in the UK. They set out the internal rules about how operate with the company, how to make decisions and who can do it.
Nothing to do with the memorandum of association, whose function is to confirm the intention to form a company.
You should be aware that you do not have to draft them from the outset. Companies House provides a standard template called Model Articles, which many small businesses use as a basis. However, it is advisable to customise them according to the specific needs that your company or potential partners may have.
It is especially advisable to draft articles of association to regulate the possibilities of shareholders, decision making for the company or to define rules on dividends, roles of directors, or protection of minority rights.
Contents of a UK company’s articles of association
The first items that will appear in a UK company’s articles of association are the name and objects of the company. The latter is no longer required to be included in detail, but it is advisable to make it clear.
Next, list the shareholders, the types of shares and the rights conferred on them (ordinary, preference, non-voting, etc.). It is also necessary to know the shares you want to issue, their nominal value, the way to transfer or sold the shares and what happens when a shareholder wants to leave the company.
The third point of a UK company’s articles of association should cover voting rights. This involves specifying how to make important decisions and what are the rules for voting at meetings.
Another essential point is to appoint the directors of the company. It will also specify what their powers and duties are, how they are appointed and removed, and how often the board of directors will meet. It may be an important point to include clauses on arbitration or mediation in case of disputes between partners.
Finally, do not forget to include how to pay dividends and when. Regulating the distribution of profits is a vital part of a company’s bylaws.
How to draft a UK company's articles of association: step by step
If you are not sure what structure to give them, take a look at the Model Articles and decide whether to build on them, modify them or create them from scratch. Whatever changes you make, keep them in mind and remember them.
Next, define the structure of your company: Will there be one or more directors? What power will the partners have? What types of shares will you issue?
When drafting, avoid unnecessarily technical language, so that all partners understand the rules. However, if you can afford to hire a lawyer, this is always a safe option.
Now it is time to contact Companies House again. When you register your company here, you need to upload your articles of association in digital format (be sure to check the format they ask for). The advantage of using the Model Articles is that you do not need to attach them afterwards, it is done automatically.
If you finally need to modify any of the points of the bylaws, you must know that at least 75% of the shareholders must approve them and communicate it to Companies House within 15 days.
Conclusions
Drafting a company’s articles of association in the UK is an opportunity to lay the foundations of how you want a business to operate. If it is done properly, it will serve as a clear roadmap for growth, decision making and avoiding conflict between partners. So take your time, think long term, and do not sign anything you do not understand or are unclear about.