Companies in England and Wales are required by law to have Articles of Association. This article addresses the purpose of Articles of Association and their relationship with the Companies Act 2006.
What are Articles of Association and how do they operate?
The Articles of Association are the governing document for companies and set out the rules on how a company is to be administratively managed. As such, the Articles of Association will cover areas such as administrative governance and structure, together with how the company should be conducted more generally and the rules surrounding this.
The Articles of Association, unless the model articles are adopted are agreed by the shareholders, directors and company secretary (if present) for the management of the internal affairs of the company. Areas that are covered in the Articles of Association include but are not limited to the transfer of shares, board and shareholder meetings and the duties and obligations of the directors.
Articles of Association can be amended, updated and have new Articles of Association adopted by companies to manage the affairs of the company to meet its needs as these change over time. A special resolution (requiring 75% or more) of the shareholder’s is required to approve amendments and the adoption of new articles of association for a company.
The Articles of Association are a public document and can be viewed on Companies House for companies incorporated in England and Wales.
What is the Companies Act and how does it operate with Articles of Association?
The Companies Act 2006 is the underpinning governing legislation that operates to manage and govern companies in the United Kingdom. The Companies Act 2006 codifies directors’ duties, the administrative obligations and guidelines for companies and the rights vested in shareholders.
If bespoke Articles of Association are not adopted when incorporating a company then the Model Articles can be used. Model Articles operate as the standard Articles of Association under the Companies Act 2006 and are commonly adopted in the first instance by newly formed companies.
What is the relationship between the Companies Act and Articles of Association?
Companies will have a choice of using the Model Articles or creating bespoke articles of association to govern their business. The contents of both will be subject to the Companies Act and generally the Act will override the company’s articles.
Due to the extensive nature of the Companies Act there may be a number of provisions of the legislation that are not suitable for the company’s operations. With this in mind the Companies Act does provide for the legislation to be varied or excluded completely in bespoke Articles of Association.
What happens when there is a conflict between the Companies Act and Articles of Association?
If the articles of an existing company are deemed incompatible with the Companies Act then the Companies Act will override the Articles of Association and the provisions that are in conflict.
The Articles of Association of a company should be kept under review to ensure these enable the business to meet its objectives and are appropriate for its day to day operations as the underlying administrative rules. It may also be advisable that if a review has not been periodically carried out, that historic actions be revisited to ensure no previous decisions are in actual fact void due to a conflict between the Companies Act and the articles of association.
If you have the need for any advice on the matter Gardner Leader’s specialist corporate team will be happy to help. Find out more information here.