Why it is important to use customised articles for your company
The word “article” means much the same as “paragraph” or “provision”. Articles of association are the legal constitution of the company, which set out how the company will be managed by the directors on behalf of the owners.
It does not matter what business is operated by your company. Articles are the frame in which you can place any picture - the rule book for operating your company.
The framework provided in these sets of documents is based on the model articles provided by the Companies Act 2006. That act freed us from the longstanding straight jacket of a document few people dared to edit. Now a company can operate under the structure best suited to achieve its objectives, rather than being bound under the same rules as every other company.
The Companies Act 2006 replaced Table A(under the Companies Act 1985) with the “model” articles, effectively a simplified and more modern version of Table A, which have become the default for companies incorporated after 1 October 2009.
However, the problem remains that these are very unlikely to suit your company. They are simply the default that someone has decided is the best compromise for most businesses. There are many additions and omissions that are unworkable or impractical for a private company.
Yet they are the rules by which you must operate. So if you want to work by different rules, you need to customise these as per your structure.
As a company grows, how it is operated changes. New directors might be appointed, the objectives of the business might evolve, or how the company is financed might change.
To avoid having to change your articles frequently, it is also sensible to draw them in ways that suit how your company might be operated in the next few years, not just what you need today.
About our sets of documents
Net Lawman offers various alternatives - each covering different scenario, creates a unique structure.
Within a document, every individual article has been drawn with great care, not only as a standalone “rule” but to tie in with the other articles so as to produce a seamless constitution for your company.
As with all our documents, the drafting notes give you our comments on every provision and make it very easy for you to edit to your precise requirement.
For more detailed information, you can read structuring your company through your articles which explains in more detail.
What you will find in your document
All of these sets of articles:
You should also put in place a shareholders’ agreement and director’s service contracts.
Within the framework that the articles set out, you need to set more detailed rules for the relationships between directors and shareholders.
Articles of association can be changed - but only with the consent of at least 75% of the shareholders. In most companies, the articles are changed extremely rarely.
In the future, when someone wants to sell his shares or a new director is appointed, you will want to be able to change who does what, without having to change your articles of association. All of that detailed control is best exercised through a shareholders agreement.
In the unlikely event that your company fails, as a shareholder you will probably lose everything. However, there is an exception.
In a winding up, certain payments to employees are priority creditors. That includes money due to a director. It follows that a director’s service contract can provide strong protection and may enable a director to claim a more substantial sum of money that might otherwise be possible. You should also consider putting in place strong service contracts if you have not already.