When starting a company, it is easy to just focus on the product or service you are selling. However, equally important is the documents stating how you run your company and how you structure the company’s constitution for the future.
Below we discuss what the Articles of Association (‘Articles’) is, what the Model Articles of Association (‘Model Articles’) is, and why using Model Articles is not always preferable for your company.
What are Articles of Association?
The Articles is the document that specifies how a company is to be governed and what the internal rules are. This document includes provisions such as how the board of directors ought to make decisions on the day to day tasks and responsibilities of the company as well as other decisions that are not referred to in the Shareholders Agreement.
While the Shareholder’s Agreement is a private document, the Articles is a public document. Together, these documents need to work cohesively as they specify the relationship between shareholders and the directors of the company.
What are Model Articles?
The Model Articles is often the first legal document you adopt when incorporating a company. The Model Articles was drafted in order to cater for private companies limited by shares, private companies limited by guarantee and public companies.
This document is automatically adopted until a company approves and adopts other bespoke Articles. While this document is a good starting point, this “one-size-fits-all” set of rules is not always the best long-term document for a company.
Why don’t the Model Articles always benefit a company?
Once your company begins to grow and develop, it is recommended that you adopt a more specific, bespoke Articles for your company. It can be as soon as the early stages of development that inconsistencies arise in the Model Articles with how the company is run on a day to day basis.
One of the important points to note is the Model Articles do not contain all the rules that a company needs to take into account. This means that if a specific decision or rule is not covered in the Model Articles, this will be left open to interpretation.
Additionally, the Shareholders Agreement and the Articles need to work cohesively together. Once a company has a Shareholder Agreement drawn up, there are often contradictions in the two documents, and this makes it difficult for decisions to be made quickly and in line with the correct procedure.
Final thoughts: What can I do to make sure this doesn’t happen to me and my company?
We recommend adopting a bespoke Articles of Association as soon as possible, particularly once you make the decision to have a Shareholders Agreement drafted. This will not only prevent inconsistency and issues from happening in the future but will also lessen legal fees in regard to these issues.
We would be happy to draft a set of rules that are unique to your company, are flexible, and that comply with the provisions of the Companies Act of 2006.