What are the Memorandum and Articles of Association?
As a business or company owner, you've probably seen the term Memorandum and Articles of Association in a few different places, but what are they and do you need them?
If you're a company owner, then yes you do need tham and, in fact, you should already have them in place. If your business isn't incorporated then you don't need to worry about it unless you're thinking of incorporating.
In short, the memorandum contains the names of all the subscribers (the people who were there at the founding point of the company e.g. initial shareholders) and the Articles of Association are a set of rules that govern how the company is run.
Every company must have a memorandum in place, they will all be in the same format and contain the same information. This includes:
- Company name
- Date of incorporation
- Type of company
- Act under which the company is registered
- Names and signatures of all subscribers (original shareholders or guarantors)
- Limited liability of shareholders or guarantors
Any person who adds their name to the memorandum during incorporation will become a member of the company, and will continue to be members until they decide to leave. Details of members will be made public on the Companies House website under the company details.
The Articles of Association
Most limited companies will use the Model Articles, but it is possible to change them if needed. These Articles will set out how the company is run, governed and owned by the members. The Articles can put restrictions on the company's power - which can be useful if the shareholders and directors do not agree and try pulling the company in different directions. This Model Articles cover the following:
- Directors' powers, responsibilities, decision making, appointment and removal, indemnity and insurance
- Shares, distribution of shares and Dividends
- Capitalisation of profits
- General meetings
- Voting Rights
If you want to change these articles in any way, such as issuing different classes of shares or adding or removing shares, then you can. However you will have to notify Companies House when applying to incorporate the company so that they can be reviewed to ensure they are acceptable.
You can do this as part of the incorporation process with Company Wizard. Just select that you wish to supply your own custom articles when incorporating.
Can I change the Articles after Incorporating?
It is possible to change the Articles after incorporation, however, they must be changed via a special resolution. In order to do this, the members have to pass the special resolution agreeing to the changes and the final document (as altered) must be submitted to Companies House within 15 days of the resolution being passed.
Whatever the reason for wanting to change the Articles, it is best to seek out professional advice first.
Entrenched Articles of Association
You might not have heard of these and probably don't need to know what they are. In basic terms, the company can adopt a special clause in their Articles which makes it harder to pass a resolution. Rather than just having a majority vote in favour of it, there can be additional provisions or procedures that have to be met before anything can be passed. Any clause that requires more than a special resolution in order to be passed is known as an "Entrenched Provision", which the Companies Act 2006 (Section 22) defines as:
- A company's articles may contain provision ("provision for entrenchment") to the effect that specified provisions of the articles may be amended or repealed only if conditions are met, or procedures are complied with, that are more restrictive than those applicable in the case of a special resolution.
- Provision for entrenchment may only be made
- in the company's articles on formation, or
- by an amendment of the company's articles agreed to by all the members of the company.
Provision for entrenchment does not prevent amendment of the company's articles
- by agreement of all the members of the company, or
- by order of a court or other authority having power to alter the company's articles.
Nothing in this section affects any power of a court or other authority to alter a company's articles.
Having Entrenched Articles isn't common where the company only has one shareholder, however, this restriction can come in useful in joint ventures where one or more of the shareholders hold less than 25% of the voting rights. By having Entrenched Articles, it can give these minority shareholders the same control over certain changes in the company. This is especially the case if one of the provisions is that the change requires a 100% vote in order to be passed.
Adopting Entrenched Articles
If you want your company to adopt Entrenched Articles or Entrenched Provisions then you must notify Companies House within 15 days of the amendment taking place using either the Form IN01 upon incorporation, or the Form CC01 if you are amending Articles that are already in place. A copy of the revised Articles should also be included with the form.
Removing Entrenched Provisions
If you find that Entrenched Provisions aren't right for your company and you want them removed then you must notify Companies House via Form CC02 within 15 days of the amendment taking effect. Also, a Statement of Compliance (Form CC03) must be completed, and a copy of the revised Articles and the resolution agreeing to the ammendment must be included with the forms.
Do I have to provide my own Memorandum and Articles?
The Memorandum is a standard template that will be provided by Companies House, or your formation Agent, once your company has been successfully registered. This will be completed using the information you provided when filling out the information to become registered.
You only need to provide your own Articles of Association if you are not adopting the Model Articles.
Can I remove a subscriber's name from the Memorandum?
No, you must never change the Memorandum of Association, even if the person leaves the company or changes their name. Because of this, you should take great care when filling out the information.