All companies have to have Articles of Association. A company’s Articles of Association regulate the way in which a company is run from both an administrative and ownership point of view.  The Articles of Association can set limitations on the powers of the directors and record some of the rights of shareholders, which are important issues on their own, but are vital in the absence of a shareholders’ agreement.  For more information contact the team on 01206 217 326.

There are many forms of Articles of Association and they often dependent on how old the company is. New companies incorporated now have standard “model” articles unless it has adopted bespoke Articles.  The standard model articles are often unsuitable for the vast majority of companies which may be set up for a specific purpose (for example, as part of a joint venture arrangement) or have minority shareholders, which the model articles do not adequately protect.  As such, it is prudent to amend the Articles of Association on incorporation or review your Articles periodically to ensure they fit the specific requirements of your company.

Arrangements that might be addressed in a company’s Articles include:

• Restrictions on shareholders selling their shares, in order to avoid circumstances where a shareholder sells shares to someone the other shareholders do not know or approve of;
• The ability to force minority shareholders to sell their shares if the majority shareholders of the company negotiate a sale of their shares to a third party (called “drag along” rights);
• The ability of a minority shareholder to force a third party buyer to purchase their shares when the purchaser intends to purchase the shares of the majority shareholders (called “tag along” rights);
• The imposition of restrictions on the company to issue new shares, to avoid situations where a shareholder’s shareholding and therefore their interest in the company is diluted;
• The setting of a minimum or maximum number of directors of the company;
• An exit strategy to overcome the fact that once shares are issued to a shareholder they belong to them for life and can be passed to their family on death. Shareholders will want to control when and how shares are transferred and tie this together with employment and director positions in the company.