Articles of association

The articles of association set out the rules according to which a company must be run and administered. They regulate a variety of matters such as:

• appointment of company directors;
• issuing of new shares;
• circumstances allowing forced sale of shares; and
• procedures relating to board meetings and shareholder decisions.

The articles of association form a contract of membership between the company and shareholders. Directors are not a party to the contract and will not be in breach of contract for breaching anything under the articles; however they have their own director's duties and are subject to their directors' service agreements.

Most new companies will adopt the model articles of association provided by Companies House. These cover:

• directors' powers and responsibilities
• decision making procedures of directors (eg how decisions should be taken, quorum for and chairing of directors meetings, how to deal with conflicts of interest etc)
• appointment of directors (including termination, remuneration and expenses)
• shares and distributions (eg issuing and transferring shares, payment of dividends, authority to capitalise profits etc)
• decision making by shareholders (eg quorum for and chairing of general meetings, voting matters and amendments to resolutions)
• administrative arrangements (including means of communication to be used, company seals and directors's insurance and indemnity)

Some companies may decide to alter these model articles to suit their particular organisation, as long as the changes comply with the Companies Act 2006. In this case, the company cannot be incorporated online; the customised articles must be sent to Companies House. If there is also a shareholders agreement in place, in may be necessary to customise the articles of association to ensure these are aligned.

A memorandum of association is the other document which is required to set up a limited company in the UK. This cannot be changed once the company is incorporated. This complements the Articles of Association and defines the company itself, including elements such as:

• company name and date of incorporation
• whether the company is limited by shares or by guarantee
• names and signatures of all subscribers

A template memorandum of association can be downloaded from Companies House.

Another document which may be used when forming a limited company is a shareholders agreement which defines the roles, rights and obligations of company shareholders. Unlike the articles of association and memorandum of association, a shareholders agreement is a private document. Share certificates must be issued for shareholders within two months of a company's formation or the date of a new share issue or transfer.

You may want (or need) to change your articles of association for various reasons, such as:

• to change the way in which your company is administered
• to change your company objects (only relevant for companies registered before October 2009)
• to take account of a change in the law
• because you have been ordered to do so by the courts or a regulating authority

The articles can be updated. To do this, the directors need to hold a board meeting and resolve to convene a general meeting and approve a circular to send to the shareholders saying that the articles need to be amended.

A general meeting needs to be held with the shareholders and they need to pass a special resolution This requires at least 75% of the vote share agreeing to the proposed changes. The new articles must then be sent to Companies House, along with proof of the special resolution, and any required forms within 15 days.

A copy of the articles of association should be kept at the company's registered office - or a 'single alternative inspection address'.

The articles will also be held by Companies House (Companies House in Edinburgh for companies registered in Scotland, and Companies House in Wales for companies registered in England and Wales) - and are accessible as a public record.