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BUSINESS TIPS

Understanding your Articles of Association

Many directors are unaware of the requirements laid out within their company’s Articles of Association. It is crucial for directors to understand their Articles, because along with relevant legislation, such as the Companies Act 2006, the Articles govern how important decisions within the company are made and in particular how meetings of the directors and shareholders are held. Directors have a duty under s.171 of the Companies Act 2006 to “act in accordance with the company’s constitution.” If a director does not act accordingly they may be liable for a breach of this section of the Act.

If the company did not supply bespoke articles upon the company’s incorporation, the Model Articles will apply. Drafting bespoke articles at the formation stage of the company’s life or changing them at a later date can help to ensure that the company can be governed in a way that is appropriate for the company’s size and structure and that suits both the directors and shareholders.

Understanding the company’s Articles of Association and making sure that the company acts in a way that is compliant with them can help to ensure that all decisions are valid and legally binding. If you require any assistance with understanding or amending your Articles of Association please contact us for more information.