Articles of association: the starting point

Articles of association are the company's internal rulebook. They set out how the company is governed, including important arrangements for directors and members. Read them before incorporation rather than treating them as a routine attachment to the application. ^[1][2]

Distinguish the formation documents

The memorandum records the subscribers' intention to form the company. The articles govern its operation. Other incorporation information records matters such as initial share capital or guarantees. These documents perform different functions and should not be used interchangeably. ^[1]

For an online incorporation, the memorandum may be generated as part of the process. That does not mean the founders have answered every governance question that belongs in the articles or a separate agreement.

Decide whether model articles fit

Model articles are standard default rules prescribed for particular company types. They are a useful starting point, but suitability depends on the proposed company. Check the correct version for a company limited by shares or by guarantee. ^[2]

Consider whether there will be one director or several, different share classes, external investors or unusual approval arrangements. Do not assume a standard package deals with every founder expectation simply because it is accepted for registration.

Work through real decision scenarios

Ask what happens if directors disagree, a shareholder wants to sell or a founder stops contributing to the business. Identify which decisions need board approval and which involve shareholders. A practical scenario often reveals a gap more clearly than reading a clause in isolation.

For example, two equal shareholders may want a mechanism for resolving deadlock. If the documents only describe ordinary voting, the commercial problem has not necessarily been solved.

Coordinate with other agreements

A shareholders agreement can address matters between owners, while the articles form part of the company's constitution. Employment contracts, IP assignments and funding documents may also be relevant. The documents should be reviewed together so that one arrangement does not undermine another.

What to prepare for a review

• The proposed owners, directors and share classes.
• The decisions requiring special approval.
• How investment, transfers and departures should work.
• Any planned investor or lender requirements.
• The chosen model articles and proposed changes.

Test the document against a working week

Choose several ordinary decisions and trace how each would be authorised under the proposed articles. Who can appoint another director? How will directors receive notice of a meeting? What happens if a participant has an interest in the proposed contract? Ask the drafter to explain the relevant clauses in plain English rather than relying only on the document's length.

Then test an exceptional event. If the company has one working director who becomes unavailable, how can the owners arrange a replacement and keep necessary decisions moving? If a board has two directors and one cannot participate in a particular decision, check the actual quorum and decision rules. These issues depend on the document adopted; do not rely on a general assumption about all small companies.

Separate a commercial instruction from legal drafting

Founders can describe the result they want without trying to write the clause themselves. For example, they might want both owners to agree before the company sells its principal product rights. The drafter then needs to decide how that protection should operate, which document should contain it and what happens if it is breached.

Use a schedule with the proposed decision, the approval expected and the reason. Include investment, borrowing, share transfers and director appointments where relevant. Mark unresolved disagreements rather than disguising them as drafting questions. A lawyer cannot produce a coherent bargain where the founders have privately agreed different outcomes.

Know which version is authoritative

A formation agent may send a standard pack before the application is final. If amendments are subsequently agreed, ensure the version adopted and filed is the intended one. Name the final file clearly and retain the acceptance material alongside it. A neatly signed shareholders agreement cannot by itself prove that a different version of the articles was adopted.

When seeking investment, give the reviewer the current articles and the history of relevant amendments. The initial memorandum and the current rulebook have different purposes. Do not silently replace an old file with a new draft and assume the company has changed its constitution.

Budget for the consequences of bespoke provisions

Tailored articles may affect future administration as well as the formation price. More elaborate approval rules can require additional notices, records and coordination before routine transactions. Ask how the company will comply with the proposed process in practice and who will maintain the evidence.

The right amount of detail depends on ownership and risk. A straightforward business may need fewer tailored provisions than a venture with multiple share classes and investors, but simplicity should still be tested against the founders' actual plans. The useful outcome is a document the directors can operate, with a clear route for obtaining advice when a proposed decision falls outside their ordinary authority.

Keep the adopted version and any later amendments in the company records. Tailored provisions should be professionally drafted and the correct approval and filing process followed when changes are made.

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