What are Articles of Association?
Articles of Association are essential documents that companies in the United Kingdom use. They describe the responsibilities and rights of the prominent people and groups involved with a company. This includes the investors who own parts of the company, the directors who run the company, and the top bosses who handle the day-to-day business.
Both private companies and public companies use the Articles of Association. Private companies are usually smaller. They have private owners, and you can’t buy their shares on the stock market. Public companies are typically more prominent. Anyone can buy and sell their shares.
Why Articles of Association Matter
The Articles of Association are vital to properly setting up a company. They ensure everyone knows what they are supposed to do and what they are allowed to do, helping the company run smoothly.
Investors put their money into companies, and the Articles protect their rights. Directors make big decisions, and the articles guide how they should do their jobs. The top managers handle the regular business, and the Articles outline what they can and can’t do.
What Goes in the Articles
There are some main things that the Articles of Association cover:
Company shares
The Articles talk about the different types of shares the company has. Shares show that you own a part of a company. The Articles say how many shares there are and what rights come with each type of share.
Shareholder meetings
Shareholders are the people who own shares. The Articles say when and how shareholder meetings happen. These are essential meetings where big decisions get made, like electing directors.
Directors
Directors are in charge of the big decisions for running the company. The Articles describe how directors are chosen and their powers and responsibilities. They cover what directors can decide independently and what they need shareholder approval for.
Management
The Articles also discuss the company’s top managers, such as the Chief Executive Officer (CEO), and explain their roles and responsibilities.
How to Change the Articles
Sometimes, a company needs to update or change its Articles of Association. How this happens depends on whether it is a public or private company.
Public companies
For public companies, shareholders vote on changes to the Articles at the Annual General Meeting (AGM). The AGM is a big yearly meeting where shareholders hear about the company’s performance and make critical decisions.
The company proposes a “special resolution” to change the Articles. If enough shareholders vote for it, the change goes through.
Private companies
Private companies handle it a bit differently. Instead of voting at a big meeting, shareholders agree to the changes in writing, a “written resolution.”
The company sends the proposed Article changes to all shareholders with a written resolution. If enough of them sign and return it saying they agree, the Articles are updated.
The Importance of Following the Rules
A company needs to do what its Articles of Association say. They are legally binding. That means the company could get in trouble if it doesn’t follow them.
Shareholders can take action if they think the company isn’t respecting their rights under the Articles. They might be able to force the company to do what it’s supposed to or get the courts involved.
Directors and managers must also be careful to stay within authority and do their duties under the Articles. If they overstep or don’t do what they should, they could be held responsible for any problems they cause.
