Limited companies – what are the Articles and Memorandum of Association used for?

In this article, we look at two of the documents required when you set up a company, with particular reference to the Articles of Association.

The Articles of Association are the main governing document of a company. At the most basic level, they are the rule book for how the company should be run and the directors are required to act in accordance with these rules.

The Articles of Association also govern the relationship between the shareholders and they are considered a form of contract between the shareholders and the company.

What type of information do the Articles contain?

A variety of matters can be included in the Articles of Association but a common list of matters included within them are:

  • Details on different classes of shares;
  • When and how new shares can be allotted;
  • Pre-emption rights on shares;
  • Limitation of liability;
  • Restrictions on transfers of shares;
  • Scope of powers granted to Directors;
  • Provisions on conflicts of interest;
  • Rules on AGMs and other meetings;
  • Provisions on how decisions should be made;
  • ‘Drag’ and ‘Tag’ rights; and
  • Director indemnities.

Since the introduction of the Companies Act 2006, the Memorandum of Association is a much less important document. All of the provisions that were previously included in the Memorandum are now included in the Articles and the Memorandum is mainly a formality upon incorporation of a company.

How do you create the documents?

When you set up a new company (this is likely to be done online), you don’t need to supply your own Articles and Memorandum. Most applicants choose to use the Companies House Model Articles. The Memorandum is automatically created using the information provided during the incorporation process.

How do you update the documents?

In order to amend or replace the Articles of Association, a special resolution of the shareholders is required.

Once your company’s Memorandum has been created (upon incorporation), you cannot change the details. It acts as a snapshot of the company’s initial subscribers at the time of formation.

This article was provided by Elemental CoSec, experts in providing corporate services and company secretarial services. If you have any questions regarding your articles of association or otherwise then please get in touch with them.

Partner Contractor Accountants

Last updated: 15th June 2019