What are the Articles and Memorandum of Association?

When registering a new limited company, you must provide (or adopt) Articles of Association, which act as the company’s ‘rule book’, and an initial list of subscribers via a Memorandum of Association.

The Articles and Memorandum are legal requirements for setting up your company.

The company incorporation process

Setting up your business as a limited company can have tax advantages in some circumstances compared with self-employment and will usually limit your personal liability for debts or liabilities the business might incur in the future.

Limited liability is not absolute, however. For example, a director may still become personally liable where they have given a personal guarantee or in certain circumstances involving misconduct or insolvency.

If you have sought advice and are certain that it is in your best interests to do so, you will need to register your business at Companies House to ‘incorporate’ it.

To register your limited company, though, several steps must be taken first:

• Choose a company name which complies with the Companies House naming rules.
• Allocate a registered office address for your company.
• Name at least one director. A private limited company does not have to appoint a company secretary.
• Name at least one shareholder. The director and shareholder can be the same person. See the GOV.UK guidance on shareholders.
• Draw up or adopt your Memorandum and Articles of Association.

Memorandum of Association

The Memorandum is a legal document stating that each proposed shareholder has agreed to form a new limited company and become a member of it. In a company limited by shares, each subscriber also agrees to take at least one share.

Once your company has been registered, this document cannot be changed or updated. Companies House offers standard templates, which you can download here.

In practice, however, assuming you incorporate using the Companies House online service, the Memorandum is automatically created using the information provided during submission.

Articles of Association – what do they contain?

The Articles set out the rules that your company will abide by.

They form part of the company’s constitution and set out rules governing the relationship between the company, its directors and its shareholders.

Depending on the Articles used, these rules can cover important elements of running a limited company, including:

• How directors make decisions and the powers they have to manage the company.
• How shareholder decisions are made.
• What happens if there is a deadlock over a particular decision.
• The issue and transfer of shares.
• The payment of dividends and other distributions.
• Directors’ indemnity and insurance.
• The appointment and removal of directors.
• How shareholder meetings and voting are conducted.

In addition, customised Articles may include specific rules governing different classes of shares, shareholder rights and restrictions on the directors’ powers.

The Articles cannot override the Companies Act 2006 or other mandatory legal requirements.

Model or customised Articles of Association

If no customised Articles of Association are provided, the company will normally adopt the appropriate Model Articles provided by the government.

Most new companies elect to use Model Articles – similar to standard terms and conditions – which are available on the Government’s website here.

Separate Model Articles are available for private companies limited by shares, private companies limited by guarantee and public companies.

These Model Articles contain the standard rules many companies need to operate, so if you are thinking of using customised Articles, they offer a useful starting point.

You can also create your own Articles to set out more precisely how you want your business to be run.

Using customised Articles does not necessarily mean you have to incorporate by post. Bespoke Articles can be submitted electronically through suitable company formation software and formation agents.

However, the standard Companies House online incorporation service is designed around straightforward formations using Model Articles, so you may need to use suitable software, an agent or another filing route if you want to incorporate with bespoke Articles.

Articles of Association vs shareholders’ agreement

The Articles should not be confused with a shareholders’ agreement.

The Articles form part of the company’s constitution and are filed at Companies House, where they can be viewed by the public. A shareholders’ agreement is normally a private contract between the shareholders who are parties to it.

Companies with several shareholders often use both documents. The Articles contain the company’s constitutional rules, while a shareholders’ agreement can deal privately with matters such as reserved decisions, share transfers, deadlock, minority protection and what happens when a shareholder leaves the business.

Can you make changes in the future?

Unlike the Memorandum of Association, your Articles can be changed as necessary to reflect changes to your business over time.

Under Section 21 of the Companies Act 2006, a company can normally amend its Articles by passing a special resolution.

A special resolution normally requires at least 75% of the votes cast to be in favour.

A copy of the special resolution must be sent to Companies House within 15 days. The amended Articles must also be filed within 15 days of the amendment taking effect.

You can read the GOV.UK guidance on company records and resolutions for more information.

Any amendments must still comply with company law. Companies House can reject documents which do not meet the relevant filing requirements.

If you are not adopting a standard set of Model Articles, it may be sensible to have bespoke Articles drafted professionally, particularly where the company has several shareholders, different share classes or unusual voting arrangements.