When you first register a new limited company, you need to provide (or adopt) Articles of Association, which act as the company’s ‘rule book’, together with an initial list of subscriber via a Memorandum of Association.
The company incorporation process
Setting up your business as a limited company is likely to be a more tax advantageous route than ‘self employment’ and it will usually limit your personal liability for any debt or liabilities the business might incur in the future.
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 business, though, there are several steps that must be taken first:
- Choose a business name (in accordance with rules set out here).
- Allocate a registered address for your company.
- Name at least one director (who can be you, your spouse, or anyone whom you trust to make decisions about how the company is run) and a company secretary.
- Name at least one shareholder (for details, see the Government’s website here).
- Draw up your memorandum and articles of association.
Memorandum of Association
The Memorandum is a legal document which simply states that each proposed shareholder has agreed to form a new limited company.
Once your company has been registered, this document cannot be changed or updated in any way. There is a standard template available from Companies House. You can download it here.
In practice, however, assuming you incorporate online, the Memorandum is automatically created using information provided during the submission process.
Articles of Association
The Articles set out the rules that your company will abide by. These ‘rules’ must be agreed by all shareholders, all directors and the company secretary, and will need to cover all of the important elements of running a limited company, including:
- What decisions the directors can make on their own and which must be approved by all shareholders.
- What happens if there is a deadlock between shareholders and directors over a particular decision (who will have the casting vote?)
- How directors will be paid.
- Whether shares may be transferred.
- How and when dividends are paid.
- Directors’ indemnity and insurance.
- Appointment and removal of directors.
You can create your own Articles to set out exactly how you want your business to be run, but if you do so, then you will not be able to register your business online through Companies House and will instead need to make a paper application, which will take longer to process.
Most new companies elect to use ‘model articles’ (a little like standard terms and conditions) which are available via the Government’s website here.
These model Articles contain all the rules that companies typically need to agree upon in order for the company to run without administrative difficulties, so if you are thinking of writing your own articles, they offer a good starting point.
Can you make changes in the future?
Unlike the Memorandum of Association, your Articles can be changed as may be necessary to reflect changes to your business over time. A copy of the amended Articles must be sent to Companies House within 15 days for approval.
If Companies House does not approve your Articles (or any amendments), then your application for incorporation may be rejected. You can have new Articles drafted professionally if you are not adopting a standard set to reduce the risk of your application being rejected.