What are memorandum and articles of association? And how can they be amended? Caroline Nicholls, Senior Associate at Birketts LLP, explains what needs to be included in a company’s memorandum and articles of association.
A memorandum of association is a legal statement signed by all initial shareholders or guarantors agreeing to form a company.
If a company was incorporated before the Companies Act 2006 (2006 Act), the company was required to deliver a memorandum of association which set out not only the initial subscriber for shares of the company but also:
The ‘objects’ clause used to be a significant statement of the purpose of the company. It listed the scope of the company’s purpose – for example, to carry on business as a general commercial company – and included more detailed permitted activities, such as to acquire and take over any business, to purchase any intellectual property rights, or to borrow or raise finance.
However, since the enactment of the 2006 Act, the scope of the memorandum has been significantly reduced. Although you will still see many pre-2006 Act companies with old style memorandum filed at Companies House, when a company is incorporated today the memorandum is much simpler, providing a snapshot of the company at incorporation. Not only that, a company’s ‘objects’ will be unrestricted unless the company’s articles say otherwise.
For those companies incorporated prior to the 2006 Act coming into force, unless they have subsequently amended their articles of association, the provisions of the memorandum which are no longer required to be included, including its list of objects, are treated as provisions of the company’s articles of association.
The articles of association are the most fundamental part of a company’s constitution. They are essentially a body of rules broadly stating how the company is to operate, and the rights attached to shares. All members and company officers (directors and secretaries) must comply with the articles.
Articles of association often contain restrictions on director’s powers to pursue certain actions, without shareholder approval and authorisation. It’s therefore vital that the company’s officers have a good understanding of the articles to ensure they are acting within their powers and following the prescribed procedures within the articles when managing the company.
A company’s articles of association will also be publicly available on Companies House.
When a company is incorporated, the memorandum must be in ‘prescribed form’, found in Schedules 1 and 2 of The Companies (Registration) Regulations 2008, and authenticated by each subscriber. The memorandum should include the following details:
However, as stated above, the memorandum for companies incorporated under earlier Companies Acts will provide additional information, no longer required by the 2006 Act.
While there is no set format for a company’s articles, they must comply with the 2006 Act and therefore certain provisions should be included to guide the regulation of the company. For ease, The Companies (Model Articles) Regulations 2008 set out model articles for the three most common types of company:
Therefore, if bespoke articles are not filed at Companies House on incorporation the appropriate model articles will automatically apply by default.
The model articles for companies limited by shares, for example, are divided into five main parts:
Although the model articles are generally enough for most newly incorporated companies, they are not compulsory, and so can be amended and tailored to suit a company’s business needs. If altered, only the amended articles need to be filed at Companies House.
Following incorporation, other than the company name, you may not amend the remaining prescribed elements of the memorandum:
A company’s articles of association are more flexible than the memorandum of association. To amend the articles, the shareholders or members of the company must pass a special resolution, with at least 75% of the total votes of all the eligible members agreeing to the resolution. Once agreed, a copy of the new articles together with a copy of the members’ resolution must be filed at Companies House within 15 days of being passed.
Further, for companies incorporated pre-2006 Act, if amending or removing the company’s objects (now deemed part of the articles), as well as following the special resolution procedure outlined above (and filing the amended articles), the company must also file a notice at Companies House and the alteration will not take effect until this notice has been registered. It’s generally recommended to remove a specific objects clause so as not to limit the activities of the company.
In addition, if an ‘entrenched’ article is being altered or removed, this can only be done if certain conditions are met. Typically, an entrenched article is one which gives one shareholder more voting power than is ordinarily the case to ensure they can block a vote to amend or remove the entrenched article. If a company’s articles contain entrenched provisions or if they are removed, specific further notice must be given to Companies House.
As businesses change and develop over time, it’s important to be able to amend and adapt the articles to ensure they best reflect the needs of the business. Advice from a solicitor should always be sought to ensure that such changes comply with latest company law.
About the author
Caroline Nicholls is a Senior Associate at Birketts LLP who has experience in a wide range of corporate transactions, including acquisitions, disposals, restructures and reorganisations, joint ventures, partnerships, equity capital markets flotations and fundraisings and private equity investments.
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Publication date: 1 December 2020
Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.
