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Every company must have The Articles of Association under English law,
Company articles bind each shareholder and establish how the company should be run in terms of procedures, types of resolutions needed for formal company approvals, powers of directors and issues such as what happens when shareholders want to sell or the company wants to create new shares.
The Memorandum of Association record basic information when a limited company is set up, such as the names of the initial shareholders. Articles of Association are far more important than the Memorandum of Association. It is no longer a legal requirement to have a Memorandum of Association (since 2009).
Unless you alter your company articles of association, on incorporation, you will start with standard or model articles, which are weak in protecting minority shareholders and place few constraints on the powers of directors
Model articles are generally unacceptable to private equity investors and/or lenders. Company law is also quite light on these key issues.
Business owners should be aware that the Articles are public information and can be viewed freely. A Shareholders Agreement is a very common way for shareholders to keep sensitive internal rules private from the public.
A comprehensive shareholder agreement may deal with the same sorts of issues as amendments to the company's articles of association.
A potential disadvantage of using the shareholder agreement route is the need to get all new shareholders to also sign up to the shareholder agreement, possibly resulting in them trying to negotiate, which is less likely where the company's articles of association have been varied in the past.
Contact us for more information on how we can assist with ensuring that your company has the right articles of association.
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