What are Articles of Association?
Updated August 2016.
A Limited company is required to have articles of association. This is a very important document and establishes the outlines that base the rules on which the business will run. The articles of association will inform Companies house how many directors are running the business, how much they are paid, share holdings and other important information relating to the Limited Company.
The articles of association also include important information about how shares can be sold and how the dividends that the shares produce are distributed. Another important factor is that it explain how internal disputes are handled between directors and / or shareholders.
You can download a model example for your business here.
The articles of association is very important piece of information and it should be taken very seriously when forming a Limited company. You should spend a lot of time formulating its content as it allows you to specify important information such as how your business is run and what types of business you are engaging in. It allows you to explain how the profits generated by your business are distributed, which could be very important in any disputes that may arise.
The articles of association will also spell out the process for appointing new directors to the company as well as how financial records will be handled by the company with regards to data protection.
It helps to be as clear as you can with your language so no misinterpretation can be made about how you issue stocks and shares, how your apply your voting rights, how you pay your dividends etc. It is almost like drawing up a users guide to how your business is run.
You will generally include information such as the purpose of the company, it’s organisation, the share capital – not unlike every other company in this country. Obviously, your company name must be included in your articles of association and this means that your legal company name will be registered at Companies House and no one else will be allowed to officially operate under your name.
When describing the purpose of your company, it is helpful to be quite detailed to make it easier to be understood by Companies House so they can register you into your correct business category. For example you may be queried over your description of ‘creator of beautiful things’ when in reality what your business is all about is being a team of wedding cake bakers and decorators.
Your company may or may not issue shares, but if you include this in your articles of association then you can choose to issue them if and when needed. Things may change as you grow and develop your business, so you have to think about all the possibilities.
How your organise your company will need to be included. You would state your business address, how many directors you have, information about your original shareholder(s) and directors etc.
Every Limited Company will have very different articles of association drawn up that are unique to your business. If you need some specialist help or advice about what you should include in your articles of association, then get in touch with us – we would be pleased to help you!
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