Memorandum and articles of association explained

For forming a company in the UK calls for a need to have both a memorandum of association and articles of association.

For forming a company in the UK under the Companies Act 2006 and previous Companies Acts, there calls for a need to have both a memorandum of association and articles of association. In this article we will understand what exactly the memorandum of association and articles of association mean.

The company is formed via a document called the memorandum of association and the articles of association dictate the way the company runs, governed and owned.

Both the responsibilities and powers of the directors are included in the articles of association which also serve as a means by which the members exercise control over the board of directors.

Memorandum of association

What exactly Memorandum of association stands for ?

The memorandum of association ensures that the subscribers (founding members) willing to form a company under the Companies Act and accept to become members of the company. The company having a share capital, undertake to obtain at least one share each.

Before the Companies Act 2006, came into effect a company’s memorandum consisted of the provisions now comes under the articles, which includes any restrictions on what the company could do. For companies established before 1st October 2009, these restrictions are now considered to be a part of the articles of association and not the memorandum.

Articles of Association

The articles of association specify the rules as per which a company must be run and managed.

They control several matters such as :

Appointment of company directors.
Issue of new shares.
Instances permitting the forced sale of shares; and
Processes associated with board meetings and shareholder decisions.

A contract of membership is formed between the company and shareholders with the articles of association. Directors are not a party to the contract and will not be in violation of contract for violating anything under the articles; however, they have their own director’s duties and are dependent on their directors’ service agreements.

Requirements for the articles of association

The Companies House provide the model articles of association which many new companies will adopt.

These include:

Powers and responsibilities of directors’.
Directors decision making processes (for example: how decisions are taken, quorum for and chairing of directors meetings, how to handle the conflicts of interest etc).
Director’s appointment (which includes termination, expenses, and remuneration).
Shares and distributions (eg. Issue and transfer of shares, dividend payment, authority to capitalize profits etc).
Shareholders decision making authority (eg. a quorum for and chairing of general meetings, matters of voting and changes to resolutions).
Arrangements for administration (which includes means of using communication, company seals, and director’s insurance and indemnity).

Some companies may determine to change these model articles to adapt to their particular organization, as long as the changes adhere to the Companies Act 2006. In this instance, the online incorporation of the company does not take place; the customized articles must be delivered to the Companies House. If a shareholders agreement is in effect, it may be essential to customize the articles of association to confirm these are aligned.

Documents required for setting up a company

A limited company is formed in the UK via a memorandum of association. This procedure cannot be changed once the company is formed.

This complements the Articles of Association and describes the company itself, which includes the elements such as:

Name of the company and incorporation date.
Whether the company is limited by guarantee or by shares.
Subscribers’ names and signatures

One can download the template of a memorandum of association from the Companies House. For forming a limited company, a shareholders agreement can also be used as another document for defining the roles, rights and responsibilities of company shareholders. Unlike the memorandum of association and the articles of association, a shareholders agreement is a private document. Shareholders get their share certificates within two months of a company’s formation or the date of a new share issue or transfer.

How articles of association can be changed by the company?

You may need to make changes in your articles of association for several reasons

These include:

For changing the procedure in which your company is administered.
For changing your company objects (only significant for companies registered before October 2009).
For taking into account changes in the law.
As you have orders to do so by the courts or a regulatory authority.

The articles of association can be updated. To do this, the directors need to conduct a board meeting and resolve to convene a general meeting and authorize a circular to be delivered to the shareholders stating that the articles need to be amended.

The shareholders need to conduct a general meeting and they are required to pass a special resolution. This needs at least 75% of the voting share accepting to the proposed changes. The new articles must be delivered to the Companies House, along with the special resolution proof, and any required forms within 15 days.

Who should keep the articles of association?

A limited company is formed in the UK via a memorandum of association. This procedure cannot be changed once the company is formed.

A company’s registered office or a ‘single alternative inspection address’ needs to keep a copy of the articles of association. The Companies House should also keep the articles of association and that too should be made accessible for the public.