Memorandum and Articles of Association Guide

Whether you are an entrepreneur launching a startup or a seasoned director managing an established firm, a comprehensive understanding of these documents is vital for compliance and effective corporate governance.

What is the Memorandum of Association?

The Memorandum of Association is a historical and legal statement that serves a singular, primary purpose: it records the intention of the initial shareholders (subscribers) to form a company.

Under the Companies Act 2006, the Memorandum has been simplified. Previously, it contained the "Objects Clause," which limited what a company could do. Today, its role is more focused on the act of incorporation itself.

Key Elements of the Memorandum

Declaration of Compliance: It confirms that the subscribers wish to form a company under the Act.

Agreement to Become Members: Each subscriber agrees to take at least one share in the company (for companies limited by shares).

Authentication: The document must be authenticated (signed) by every subscriber.

Prescribed Form: It must follow a specific legal format provided by Companies House.

Once the company is incorporated, the Memorandum becomes a "snapshot" in time. It cannot be amended; if you add new shareholders later, they do not sign the original Memorandum. Instead, their rights and obligations are governed by the Articles of Association.

The Articles of Association: The Company’s Rulebook

While the Memorandum establishes the company's existence, the Articles of Association dictate how it is managed. This is a "living" document that functions as a contract between the company and its members (shareholders).

By default, the Companies Act 2006 assumes a company has unlimited power to carry out any legal activity. However, the Articles can place specific restrictions on these powers. This is particularly useful for shareholders who wish to ensure that directors do not pursue certain high-risk actions without explicit board or member approval.

Model Articles vs. Bespoke Articles

To simplify the process for small businesses, the UK government provides Model Articles. These are standard sets of rules defined in the Companies (Model Articles) Regulations 2008. There are different versions for:

Private companies limited by shares.

Private companies limited by guarantee.

Public limited companies (PLCs).

Many companies choose to adopt the Model Articles in their entirety or "with amendments" to suit their specific needs.

Essential Components of the Articles of Association

What exactly goes into the Articles? While there is no rigid "one-size-fits-all" form, the following areas are typically covered to ensure smooth governance:

1. Directors' Powers and Responsibilities

The Articles define what directors can and cannot do. This includes their collective authority to manage the business and any specific limitations placed on that authority by the shareholders.

2. Appointment and Dismissal of Directors

This section outlines the procedure for bringing new directors onto the board and the legal mechanisms for removing them. It also covers the resignation process and the disqualification of directors.

3. Decision-Making by Directors

How do directors vote? What constitutes a "quorum" (the minimum number of people required to make a meeting valid)?

The Articles clarify these procedural hurdles to prevent future legal disputes over board decisions.

4. Shares and Distributions

For companies limited by shares, the Articles are crucial for defining:

Share Classes: Different classes (e.g., Ordinary, Preference) may have different voting rights or dividend entitlements.

Share Transfers: Rules on how shares can be sold or transferred to others.

Dividends: The process for declaring and paying dividends to shareholders.

5. Member Meetings and Voting

The Articles set the rules for General Meetings. They define how resolutions are passed (Ordinary vs. Special resolutions) and how members can exercise their voting rights through proxies.

6. Administrative Requirements

Provisions for keeping records, sealing documents, and methods of communication (such as electronic notice for meetings) are also included.

The Role of Shareholders' Agreements

While the Articles of Association are a public document filed at Companies House, many companies also utilize a Shareholders' Agreement.

A Shareholders' Agreement is a private contract. It allows owners to include confidential arrangements—such as detailed exit strategies, dividend policies, or dispute resolution mechanisms—without making them visible to competitors or the general public. If there is a conflict between the Articles and a Shareholders' Agreement, the Agreement typically takes precedence between the parties involved.

Amending the Articles of Association

As a business grows, its original rules may become outdated. A company can amend its Articles at any time by passing a Special Resolution (which requires a 75% majority vote from shareholders).

If amendments are made, the company must:

Submit a copy of the new Articles to Companies House.

Submit a copy of the Special Resolution.

Ensure these filings occur within 15 days of the change.

Why Regular Reviews are Necessary

For business managers and company secretaries, maintaining a "working knowledge" of the Articles is a professional requirement. Directors must act within their "scope of powers." If a director takes an action not permitted by the Articles, they could be held personally liable for a breach of duty.

Regular reviews help balance:

Director Flexibility: Giving leadership the power to move quickly.

Shareholder Protection: Ensuring the owners' interests are protected from unauthorized risks.

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Service-Related Questions & Answers

1. Can I change the Memorandum of Association?

No. The Memorandum is a fixed historical statement of the subscribers at the time of incorporation. To change how the company is run, you must amend the Articles of Association.

2. What happens if I don't file Articles of Association?

If you do not submit your own Articles, the "Model Articles" relevant to your company type will automatically apply by default.

3. Is a Shareholders' Agreement legally required?

No, it is not a legal requirement, but it is highly recommended for companies with more than one shareholder to manage private internal affairs.

4. How many witnesses are needed for the Memorandum?

Under the 2006 Act, subscribers simply need to authenticate the document; the previous requirement for a witness for each signature has been simplified.

5. Can one person be both a director and a shareholder?

Yes, in a private limited company, one person can hold both roles

and be the sole subscriber to the Memorandum.

6. Do I have to tell Companies House why I am changing my Articles?

No, you do not need to provide a reason, but you must submit the resolution and the new Articles within 15 days.

7. What is a "Special Resolution"?

It is a decision passed by at least 75% of the votes cast by shareholders entitled to vote.

8. Are the Articles of Association available to the public?

Yes, anyone can view a company's Articles by searching the Companies House register.

9. What is a "subscriber"?

A subscriber is a person or entity that adds their name to the Memorandum of Association, agreeing to take shares in the company upon its formation.

10. Can a company have "Objects" today?

Yes, while most companies have "unrestricted objects," you can choose to add specific object clauses to the Articles to limit what the company can do.

11. What is the role of a Company Secretary regarding these documents?

The Secretary ensures the company follows the procedures laid out in the Articles and handles the filing of any amendments with Companies House.

12. How often should the Articles be reviewed?

It is best practice for the board to review the Articles annually or whenever a significant change in ownership or business direction occurs.

13. What is a quorum for a meeting?

A quorum is the minimum number of members or directors required to be present to make the proceedings of a meeting valid. This number is usually defined in the Articles.

14. What are "Class Rights"?

These are specific rights attached to a particular class of shares, such as the right to a higher dividend or extra voting power, as defined in the Articles.

15. Can I use the 1985 Table A Articles?

Companies formed before October 2009 may still be governed by "Table A" from

the 1985 Act unless they choose to adopt the 2006 Model Articles.

Disclaimer: The information provided in this article is for general informational and research purposes only. Company details, features, services, and market positions may change over time. Readers are advised to visit official company websites and conduct independent research before making any business decisions or purchasing services.