A significant number of small businesses in the UK do not take full advantage of HMRC-approved...
As a company owner, have you ever wondered what the Memorandum and Articles of Association mean?
It’s quite likely that you’ve come across these terms more than a handful of times – but what are they, really, and do you even need them?
Well, since we’re talking in the context of company or business ownership – yes, you need them. In fact, you should do everything possible to ensure that they have been considered before setting up your company.
With that said, if your business has been incorporated already, then you will likely have the “Model A” default Companies House Memorandum and Articles of Association which give wide and fair rights to the directors and shareholders.
What you need to know about Memorandum and Articles of Association
At a glance, the memorandum is what contains the names of all the founding partners of the company, i.e. the initial shareholders – while the Articles of Association is a document which sets out the rules for running the company.
But there’s a lot more to it when we delve in a little deeper.
Understanding the Memorandum
Every incorporated company must have a memorandum ready and in place. The information included in it is as follows:
- The company name;
- Date of incorporation;
- Type of company;
- The Act under which it was registered/incorporated;
- Names and signatures of all the original shareholders and/or guarantors.
It should be noted that any individual who adds his/her name to the memorandum while incorporating automatically becomes a company member. Details of all members are made public by Companies House on their website.
Understanding the Articles of Association
The main purpose of the Articles of Association is to define how the company will be owned, operated and governed. These Articles can also put certain restrictions on how the company is run and how much power it can exercise – but this shouldn’t be a cause for concern as it can be useful in the event shareholders and directors do not see eye-to-eye, and may put the company on different trajectories as a result.
The Model Articles or Articles of Association cover the following:
- The Directors’ responsibilities, powers, appointment and removal, decision making abilities, indemnity and insurance;
- Shares and dividends as well as their distribution;
- How profits are capitalised;
- General meetings;
- Details specific to each shareholder;
- Voting rights.
Since the Articles of Association is a public document, your company shareholders may draw up a Shareholder’s Agreement in order to augment the Articles with respect to the company’s running, ownership and governance. This is useful if certain company aspects need to be kept hidden from public scrutiny.
If you want to change the Articles in any way, then you must notify Companies House after passing a special resolution requiring at least 75% shareholder approval and sending them to be filed at Companies House as the record keeper of your company’s registers.
Do you require any further guidance on Memorandum or Articles of Association? If your company has been successfully registered, then you need to be well-versed with how these two documents affect the way your company is owned, run and governed.
Our approachable accountants are always ready to help in any way possible.