Memorandum and articles of association are critical to the establishment and administration of a business, and the importance of such documentation stretches far beyond simply meeting minimum legal requirements.
- Memorandum is the document that sets up the company
- The Articles form the company’s constitution and set out how the company is regulated and internally managed
In this blog, we explore how small and medium-sized entrepreneurial businesses can use articles of association to plot a course for the business.
When launching a business, it is often difficult to know where to start; from leasing an office and recruiting the first tranche of employees, to raising funding and new product introductions.
However, one unavoidable task which must be completed before any of the above can be pursued is the submission of important legal documents to Companies House.
What are the articles of association?
In the absence of a shareholders’ agreement, it is the articles of association that set out and formalise how a company is owned and managed.
The submission of articles of association and a memorandum of association is mandatory for all private limited companies in the UK, under the Companies Act 2006.
Comprising the company’s constitution, articles of association are written rules about running the company agreed by the shareholders or guarantors, directors, and the company secretary.
Articles of association set out and regulate how a company must be administered, including:
- Appointment of company directors
- Issuing of new shares
- Circumstances allowing the forced sale of shares
- Procedures relating to board meetings and shareholder decisions
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Most new companies will adopt the model articles of association provided by Companies House. More information on this can be found here.
Ensuring the implementation of appropriate provisions in the articles will also be beneficial when it comes to fundraising. For example, prudent investors will want clarifications on voting rights, dividends, proceeds on sale, pre-emption rights and the composition of the company’s share structure.
Any modifications to the articles must comply with the Companies Act 2006 and be sent to Companies House.
It is important to ensure that the Articles are reviewed and amended (where necessary) whenever any changes to capital are planned, for example, Share Option Schemes, creation of different classes of share and issuing shares etc.
Related | What’s the right investment route for the tech start-up?
What is the memorandum of association?
A memorandum of association is a legal statement signed by all initial shareholders or guarantors agreeing to form the company.
The memorandum of association complements the articles of association and defines the company itself, including elements such as:
- Company name and date of incorporation
- Whether the company is limited by shares or by guarantee
- Names and signatures of all subscribers
If registering online, the memorandum of association will be created automatically during the registration process.
If registering by post, a template memorandum of association can be downloaded from Companies House here.
However, the document cannot be updated once registration is complete.
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How icount can help?
Accounting and finance specialists, like icount, can help early-stage and growing entrepreneurial businesses.
Once a company has been set up, our extensive network of accounting and finance professionals can support entrepreneurs by seamlessly integrating with their existing teams.
By supporting seed and early-stage technology companies to scale with a smart cloud-based accounting service, icount is the catalyst a business needs to graduate to an appropriate and proportional comprehensive Isosceles accounting and finance, HR, and payroll package.