A Guide to the Memorandum and Articles of Association

A guide to the foundation documents of a company

The memorandum and articles of association are two separate documents that all limited companies are legally required to have when they are incorporated with Companies House. Limited liability partnerships do not need these documents.

The memorandum of association is a signed declaration of the founding members’ (shareholders or guarantors) intention to legally incorporate and become part of a company by taking shares or committing to a financial guarantee.

The articles of association is a more substantial document that outlines the constitution and governance of the company. It contains a number of sections and provisions, each of which sets out the rules and regulations of a company, the responsibilities and rights of its officers and members, and the relationship between the company and its members.

Memorandum of association

This is a very simple document in a standard format that cannot be altered. It is a legal declaration of the first shareholders of a company limited by shares or the guarantors of a company limited by guarantee, in which they state their wish to set up a company and become part of it. It serves as a record of their company membership and their financial liability toward the business.

Each member is required to subscribe (add) their name to the document and take at least one share or agree to a guarantee during the company formation process. Members must contribute the value of their shares or guarantees if the business becomes insolvent or is dissolved. This is known as ‘limited liability’.

The following details will be displayed on the memorandum of association and disclosed on the public register of companies:

• Registered company name
• Date of subscription
• Act under which the company is incorporated - Companies Act 2006
• Whether the company is limited by shares or limited by guarantee
• Names of each subscriber (founding members)

Companies House will make all of this information available on public record as soon as your company is incorporated, and the memorandum will remain there indefinitely in its original form. You will not be able to change any details on the memorandum after incorporation, even if you make a spelling mistake or one of the founding members leaves the company at a later stage.

Articles of association

The articles of association is essentially a rule book for running a company. All members and company officers (directors and secretaries) are required to comply with the provisions of the articles at all times, but it is possible to make alterations after incorporation if the needs of the business or its members change.

Quality Company Formations provides standard articles (very similar to Companies House ‘Model’ articles) prescribed by the Companies Act 2006 for companies limited by shares and companies limited by guarantee. These articles are sufficient and appropriate for the majority of new companies.

If the standard articles do not suffice, you can download the model articles and alter them accordingly. Alternatively, you may create entirely bespoke articles on the condition they comply with company law - if you wish to issue different types of shares, for example, or restrict the powers of the company directors, you will have to alter the Model articles accordingly and upload a copy for Companies House with your incorporation application.

Contents of Model articles for companies limited by shares:

Part 1: Interpretation and limitation of members’ liability

Part 2: Directors

• Responsibilities and powers of directors
• Directors’ powers and responsibilities
• Decision-making by directors
• Appointment of directors

Part 3: Shares and distributions

• Share guidance - issuing, payment, powers, transfer procedure
• Issuing dividends
• Issuing dividends and other distributions
• Capitalisation of profits

Part 4: Directors

• Organisation of general meetings
• Voting at general meetings

Part 5: Administrative arrangements

• Means of communication to be used
• Company seals
• Inspection of accounts and other records
• Provision for employees on cessation of business
• Directors’ indemnity and insurance

Entrenched or restricted articles

It is possible to include additional clauses in the articles to restrict the alteration or removal of certain provisions after incorporation. This can be useful for companies that are owned by more than one person, particularly when minority shareholders (those holding 25% voting rights or less) are involved. Companies with just one member, or two members with 50% equal shareholdings, do not normally add such clauses, because there is no need.

Most changes to the articles can be approved by passing a special resolution, which requires a 75% majority vote of the members. If you wish to further restrict changes to certain provisions beyond this percentage - for example, the unanimous agreement (100%) of all members - you will have to include provision for entrenchment in the articles.

Under the Companies Act 2006 (Sec. 22), the rules for entrenched provisions are set out as follows:

• 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. (http://www.legislation.gov.uk/ukpga/2006/46/section/22)

Under the Companies Act 2006, it is no longer possible to introduce absolute entrenchment of the articles. You can only restrict provisions on a conditional basis by enabling them to be changed by following a specific procedure, or upon the satisfaction of specific conditions like a 100% majority vote of the members.

As per the Companies Act 1985, a limited company was able to entrench certain aspects of its constitution by stating them in the memorandum with the condition that they could not be changed at any time. Any existing company that was incorporated under the Companies Act 1985 (before 1st October 2009) that wishes to change absolute entrenchment in its articles will need to obtain a court order to do so.

Notification procedures for entrenched articles

You must inform Companies House using the appropriate form if you include or wish to make alterations to any entrenched provisions in your company’s articles. The following notification provisions can be found in sections 23 and 24 of the Companies Act 2006. Their purpose is to ensure Companies House, and any member of the public who searches the public register of companies, is on notice that a company’s articles contain entrenching provisions, and that special rules apply to the company’s articles.

How to adopt entrenched provisions

To adopt or alter the articles to include entrenched provisions, you must notify Companies House on the prescribed form. This must be done within 15 days of any such amendment taking effect. You must include a copy of the articles as amended, in addition to a copy of the members’ resolution approving the amendment.

• Changes upon incorporation: Companies House Form IN01
• Amending the articles after incorporation: Form CC01

How to remove entrenched provisions

To remove entrenched provisions from the articles of an existing company, you must notify Companies House on Form CC02. This must be done within 15 days of the amendment. You must also include a Statement of Compliance (Form CC03) and copies of the altered articles and the members’ resolution approving the changes.

How to alter existing articles containing entrenched provisions

To alter existing articles that contain entrenched provisions, you must provide a document for Companies House that shows evidence of the alteration(s). You must also include a Statement of Compliance certifying the changes have been made in accordance with the articles (including any provision for entrenchment) or, where relevant, in accordance with any order of the court or other authority that is in force at the time of the amendment.

You may not alter the articles in any way that requires shareholders to increase their shareholdings or liability, unless a written agreement is made before or after the alteration.

Can I change the articles of association after company formation?

If you wish to alter the articles of association after company registration, the shareholders must pass a special resolution at a general meeting or in writing. To pass this type of resolution, at least 75% of the votes cast must be in favour of the decision.

When the changes have been made and agreed by the members, the director or company secretary should file a copy of the articles as altered, and a copy of the members’ resolution with Companies House.

A copy of the new articles and the members’ resolution should be kept with your company’s statutory records at the registered office or SAIL address.

Filing notification of changes to the articles

If you need to make any changes to your articles of association after your company has been registered, you can file the required documentation (the articles as altered and the accompanying members’ resolution) online using our secure software filing facility.