Every limited company must have two documents which together constitute its constitution. These are the Memorandum of Association and Articles of Association. The Memorandum sets out the basis on which a company exists and the Articles sets out the way in which the company is run.
In companies incorporated before October 2008 the Memorandum is an important document as it sets out the company’s basic powers and objects (in other words, what the company can and cannot do). For companies incorporated since then, the Memorandum simply states that the company exists (and it cannot be subsequently changed).
The Articles of Association regulate the way a company is administered. While the Articles do not usually address matters of day-to-day management, they will govern such fundamental matters as the issue of new shares, the procedures surrounding shareholder decisions and board meetings, and appointment of directors. They may also provide for restrictions on sales of shares, or set out circumstances in which a shareholder might be forced to sell his shares.
There are default Articles, set down by law, which will apply to most companies, but these default Articles can be changed, and it is often good practice to amend the default Articles to fit the specific requirements of a company.
The sorts of issues that might commonly be addressed in a company’s Articles are:
Restrictions on shareholders selling their shares.
The ability to force minority shareholders to sell their shares to someone to whom the majority have agreed to sell the company.
The ability for a minority shareholder to block the sale of the majority’s unless the buyer also buys the minority’s shares.
Restrictions on the issue of new shares.
The minimum or maximum number of directors of the company.
Provisions for how directors meetings are to take place.
Provisions setting out shareholders can make decisions.
Our Commercial team are very experienced in advising on and preparing Articles of Association. We can also advise on the initial setting up of the business and on the other legal issues that arise in running a business, such as property and employment matters and all kinds of commercial agreements.